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Key takeaways
- The program funds eligible long-term fixed assets.
- Bank debt, CDC financing and borrower contribution form separate parts.
- Care-property classification can increase the required contribution.
Why does the term matter in a care-business sale?
The building and the business do not always use the same financing. SBA's overview describes land, buildings and qualifying long-life equipment. It excludes working capital, inventory and investment in rental real estate. The buyer still needs cash to run the operation after closing.
A proposal labeled 504 should identify the eligible project cost, the bank's share, the net CDC funding and the borrower's contribution. A debenture is the debt instrument used to fund the CDC portion. Its amount is not the entire project price. Administrative costs can make the gross debenture larger than the net proceeds applied to eligible project costs.
A fictional funding example
Assume the CDC accepts a $2,000,000 eligible project for an existing special-purpose care operation and accepts the minimum contribution. A simplified structure is $1,000,000 from the bank, $700,000 in net CDC proceeds and $300,000 from the borrower. These equal 50%, 35% and 15%, totaling the project cost.
This example excludes administrative costs, goodwill and operating cash. It is neither a quote nor an eligible structure for every acquisition. If the project is also classified as a new business, the reviewed SOP requires at least 20% contribution, changing the funding shares. The full 504 guide explains that classification and a complete acquisition cash example.
What should the reader verify?
Ask who owns the property, who operates the care business and whether their agreements fit the applicable rules. An OpCo/PropCo structure requires review of the lease, control, occupancy and guarantees. Resident bed occupancy is a different measure from the operator's required use of rentable space.
Then identify the separate funding for working capital and other excluded costs. Compare each debt's payments, maturity and conditions with the operation's coverage ratio. The September 7, 2026 review supports these definitions; the CDC must confirm the rules governing a later application.
Use the financing comparison to decide which options deserve further investigation. The useful first question is what the buyer needs to fund, followed by whether the operator, property and full cash schedule support that proposal.
Frequently asked questions
Is a CDC the same as the bank?
No. A Certified Development Company arranges the SBA-backed 504 portion. A participating third-party lender supplies a separate part of the project financing. Review each party's commitment, documents and repayment terms.
Does SBA 504 cover the goodwill in a care-business purchase?
The reviewed acquisition rules exclude goodwill and receivables from 504 project financing. Working capital also needs another source. Separating these uses prevents the buyer from confusing an eligible property budget with the full purchase budget.
Does the SBA guarantee remove the borrower's repayment duty?
No. The program guarantee does not erase the debt or any required personal guaranty. Review the actual borrower, guarantors, collateral and remedies in the loan documents before accepting the obligations.
Does a fixed CDC rate fix the bank's rate too?
No. The third-party loan has its own rate, maturity and repayment terms. An interim loan may add another schedule. Read the complete funding package instead of assuming all portions share the debenture's terms.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- SBA: 504 loans (2026). Retrieved September 5, 2026.
- SBA SOP 50 10 8: reviewed 504 acquisition and property provisions (2025). Retrieved September 7, 2026.
- SBA policy notice 5000-879058: coordination of 7(a) and 504 limits (2026). Retrieved September 7, 2026.