By Sundip Patel
Small Business Administration (SBA) loans offer unique opportunities for credit unions to support local business growth while diversifying their portfolios. The main types of SBA loans include SBA 7(a) and SBA 504, each with different terms, regulations and eligibility requirements.
An SBA 7(a) loan is the SBA’s most flexible lending program, used for working capital, equipment purchases, business acquisitions, debt refinancing, for owner-occupied real estate. These loans feature competitive, often variable interest rates and repayment terms of up to 25 years. The SBA guarantees up to 85% of loans up to $150,000 and 75% for larger amounts, reducing risk for lenders while expanding access to capital for small businesses. Equity injection requirements vary by use of funds and borrower profile but are generally modest compared with conventional loans.
The Objective
SBA 504 program is designed to promote business growth and job creation by enabling small businesses to purchase or improve owner-occupied properties with as little as 10% equity. It provides long-term, fixed-rate financing as a partnership between a certified development company (CDC) and a private lender and reduces risk for participating credit unions and lenders.
While both programs play critical roles in small-business financing, the 504 loan program stands out for credit unions seeking to expand their commercial real-estate and equipment lending. Its long-term, fixed-rate structure and first-lien position make it particularly well-suited for institutions focused on stable portfolio growth, job creation, and community impact.
Why Should CUs Offer the Loans?
Why should credit unions adopt SBA 504 loans?
Community Benefits
Credit unions and the Small Business Administration have the same mission to support underserved communities. Offering 504 loans provides more financing options that allow credit unions to follow their mission of driving local community prosperity, job creation and wealth building for its members through property ownership.[SP1] The program’s job creation requirements ensure that funded projects contribute to local economic development.
For example, a manufacturing company that uses SBA 504 financing to purchase new equipment and to pay rent on its factory. This investment in the facility allows the company to increase the property’s value while also building ownership. As the loan enables property ownership, the company is able to grow and invest more in its people, leading to more jobs. The construction and renovation of the property also create short-term construction jobs.
As a result of this loan, the company’s owners were able to grow their own wealth through property ownership while also having a positive impact on its local economy, creating new long-term and short-term jobs.
The community-focused mission of credit unions aligns naturally with SBA goals, creating authentic partnerships with local business owners. Members appreciate working with institutions that understand their neighborhoods and business challenges. A credit union loan officer who grew up in the area knows why the family bakery needs to expand during holiday seasons or understands how the local contractor’s cash flow fluctuates with weather patterns.
Member Benefits
Adopting SBA 504 loans provides members with an additional form of financing, with a lower down payment of 10% compared to traditional loans. Further, 504 loans’ fixed rates help protect borrowers from market volatility.
The loan terms are 20 to 25 years for real estate[SP2] , providing borrowers with manageable payment structures that preserve working capital. This extended repayment period allows businesses to invest in growth rather than debt service, strengthening long-term member relationships.
Credit Union Benefits
SBA 504 loans enable credit unions to support various small businesses while minimizing credit risk. The SBA guarantee on the second mortgage portion reduces exposure, allowing credit unions to approve loans for borrowers who might not qualify for conventional commercial financing due to limited collateral or shorter operating histories.
The SBA 504 program supports projects of varying sizes, with the SBA-backed portion typically up to $5 million—or $5.5 million for green energy or manufacturing projects. Combined with the lender’s first mortgage, total financing packages can reach $15–$18 million or more. This structure lowers risk for credit unions due to SBA debenture and strong collateral coverage.
SBA 504 loans create lasting member relationships that extend far beyond the initial transaction. Business owners who secure their first commercial property through their credit union often return for other type of financing as they expand[SP3] – working capital, term loans, invoice financing, etc. These relationships generate referrals within local business networks, attracting new members who value the credit union’s commitment to small business growth.
SBA 504 loans provide steady cash flow through predictable payments while generating fee income from origination and servicing, delivering both mission impact and financial sustainability.
Adopting SBA 504 as a Service Offering
Credit unions can implement SBA 504 lending through several pathways that align with their existing capabilities and member needs. The process begins with evaluating your credit union’s commercial lending appetite and member base to identify opportunities. Many credit unions discover latent demand among existing members who own small businesses but previously sought financing elsewhere.
The most efficient approach involves partnering with an experienced credit union service organization (CUSO) that specializes in commercial lending. These partnerships can provide immediate access to underwriting expertise, regulatory compliance knowledge and established SBA relationships without the overhead of building internal capabilities.
A CUSO partner can handle the complex SBA documentation, coordinate with Certified Development Companies, and manage the intricate three-party loan structure that defines 504 financing.
Running an SBA 504 program Efficiently
Once a credit union decides to offer SBA 504 loans, the focus shifts to creating smooth operations that serve members effectively while managing the program’s complexity. The key lies in building systems that handle the detailed requirements without overwhelming staff or slowing the member experience.
Technology transforms SBA 504 lending from a paper-heavy process into a streamlined operation that serves members better. Modern loan origination systems automate documentation requirements, track compliance milestones and integrate with SBA systems to reduce processing time. Credit unions leveraging these technological solutions can approve and close 504 loans faster while maintaining rigorous underwriting standards.
Partnering with a tech-forward CUSO [SP4] eliminates redundancies and creates consistent workflows that benefit both staff and members. Automated systems flag potential issues early, generate required reports, and maintain audit trails that satisfy both SBA and credit union regulators.
Building Stronger Communities
SBA 504 lending creates a natural partnership between credit unions and their communities that benefits everyone involved. Local businesses that secure affordable financing for expansion or equipment purchases become job creators and economic drivers.
Credit unions embracing modern lending technology can process more applications efficiently while maintaining the personal relationships that set them apart from larger financial institutions.
Automated systems level the playing field, allowing smaller credit unions to compete with larger institutions in commercial lending without sacrificing personal service. Faster decisions and smoother closing processes strengthen member loyalty while demonstrating institutional commitment to supporting local business growth.
Credit unions that combine their community mission with smart technology choices position themselves for long-term success while staying true to their cooperative values. When credit unions streamline these programs through technology partnerships, they create sustainable competitive advantages that extend beyond individual transactions.
A Powerful Tool
The SBA 504 program is a powerful tool for supporting small businesses and it is deeply mission-aligned for credit unions. By helping members acquire owner-occupied real estate or invest in long-term growth, credit unions can strengthen local economies while achieving stable, well-secured portfolio growth.
Through these programs, credit unions not only expand their market reach but also reinforce their cooperative purpose: empowering entrepreneurship, creating jobs, and building stronger communities.
Now is the time for credit unions to leverage the SBA 504 opportunity to turn community commitment into sustainable growth.
Sundip Patel is CEO of AVANA CUSO.
