An SBA 504 debt refinance lets a business that owns its building swap the current mortgage for a bank loan plus a long-term loan from a CDC (Certified Development Company), but the debt, the property and the business each have to pass tests in SBA SOP 50 10 8.1, effective October 1, 2026. This guide walks through three of those tests: whether the old debt qualifies, which costs are eligible to roll in, and the occupancy rule that has the business occupy at least 51 percent of an existing building's real estate. We cover each rule as of November 2, 2026, then size a refinance on an assumed $2,000,000 building.
Two ways to refinance debt with an SBA 504 loan
SOP 50 10 8.1 runs two refinance tracks with different rules. Debt refinance without expansion pays off a "Qualified Debt" plus, if you ask for them, itemized Eligible Business Expenses. Debt refinance with expansion applies when the project acquires, builds or improves land, a building or equipment for your use, and existing debt is added to that project's cost.
| Rule | Without expansion | With expansion |
|---|---|---|
| What it can pay | Qualified Debt plus optional Eligible Business Expenses | Existing debt up to 100% of the expansion cost |
| Time in business | Full 2 years before the application | Standard 504 rules |
| Debt seasoning | Fully disbursed and secured by eligible fixed assets for 6 months or more | Debt must be secured by fixed assets |
| Payment record | CDC obtains a transcript of account on the debt | Current (no more than 30 days in arrears) for 1 year before SBA approval |
| Lower installment test | Only when the old loan carries a federal guarantee | Required for all refinanced debt |
| Loan-to-value | Bank plus CDC loan at or below 90% of appraised value | Standard 504 project split |
The with-expansion track also requires "better terms or rate of interest," such as a longer maturity, a lower rate or looser covenants.
Which existing debt qualifies for an SBA 504 refinance
For the no-expansion program, the SOP and 13 CFR 120.882(g) define Qualified Debt as a commercial loan that:
- used 75% or more of its proceeds to acquire an Eligible Fixed Asset, with the rest incurred for the benefit of the business (if the original loan was later refinanced, the test looks back to that original loan);
- was fully disbursed at least 6 months before the application date;
- was incurred for the benefit of the small business seeking the refinance;
- has been secured by Eligible Fixed Assets for at least 6 months; and
- isn't the bank loan inside an existing 504 project, unless both loans in that project are being refinanced or the bank loan is paid in full.
When the old debt is an SBA loan, the CDC must notify its lender or CDC in writing at least 10 business days ahead, and for any federally guaranteed loan the new installment tied to that debt must come in below the old one once prepayment penalties and financing costs are added in.
Neither track can refinance debt owed to an Associate of the business, to an SBIC or New Markets Venture Capital Company, or to a creditor positioned to shift a potential loss to SBA. If your current lender will also make the new bank loan, that's Same Institution Debt, and a CDC with delegated PCLP authority must send the loan to SBA for approval.
How the 51 percent occupancy rule applies to a building you already own
The SOP applies occupancy limits "when debt secured by real estate is refinanced with loan proceeds." In an existing building, the business must occupy 51% of the Rentable Property and may lease up to 49% to a third party (new construction carries a 60% test). Rentable Property excludes stairways, elevators and mechanical areas but includes common areas and can include actively used exterior space other than parking.
Timing matters most on an older purchase. The no-expansion program says the borrower must meet current 504 occupancy rules at the time of application, and if the original loan wouldn't have met SBA leasing rules, you must show 51% occupancy as of the application date. A business using 8,000 of 20,000 square feet (40%) would need to take back at least 2,200 more square feet before applying. 504 proceeds also can't improve space leased to a tenant, and our 504 eligibility guide covers the rest of the file.
Which real estate costs are eligible in an SBA 504 debt refinance?
Without expansion, 504 proceeds can pay the Qualified Debt, professional fees essential to the project (such as title insurance, appraisals and environmental studies), repayment of interim financing, and eligible administrative costs, which are added to the net debenture.
Eligible Business Expenses fit only when the financing exceeds the payoff. They cover operating expenses unpaid before the application or due within 18 months after it (salaries, rent, utilities, inventory), balances on a business line of credit or business card in the company's name with any personal purchases deducted, and other debt secured by the same fixed assets for at least 6 months that wasn't taken on for capital expenditures. Each expense must be itemized, since the SOP says a gross figure is not acceptable. SBA's 504 program page lists working capital and inventory as ineligible for ordinary 504 projects, so this carve-out belongs to the no-expansion refinance alone.
Sizing follows 13 CFR 120.882(g)(5) and (g)(6), based on the appraised value of the collateral. The bank loan must be at least as large as the 504 loan, the 504 loan can't exceed 40% of value, the borrower contributes at least 10% (15% for a limited or single purpose property, and equity in the property counts), and the two loans together can't exceed 90% of value. If the payoff alone tops 90%, you bring cash or pledge other fixed assets SBA accepts, though extra collateral can't raise the value when business expenses are in the request. Any unpaid balance on the old loan must be forgiven, paid by you, or carried on a note subordinate to the 504 loan when they share collateral.
Two more caps apply. If the project doesn't meet SBA's job creation or other economic development objectives, SOP 50 10 8.1 limits the 504 loan to $95,000 per employee (the eCFR text dated October 1, 2026 still showed $90,000, so confirm with your CDC). Outstanding gross debentures are capped at $5,000,000 per business and affiliates, or $5,500,000 per project for small manufacturers and eligible energy projects.
SBA's FY 2027 504 fee notice, for loans approved October 1, 2026 through September 30, 2027, sets a 0.50% upfront guaranty fee and a 0.204% annual service fee on the outstanding balance for no-expansion refinances, against 0.203% for other 504 loans. Both are waived for manufacturers (NAICS 31-33), the listed food supply chain codes and rural businesses. Our SBA loan fee guide covers the other charges.
Worked example: sizing a 504 refinance on a $2,000,000 building
Every figure here is an assumption; a real file is sized from an independent appraisal and lender underwriting.
Assumptions: an existing building with 20,000 square feet of Rentable Property, appraised at $2,000,000, that SBA wouldn't treat as a limited or special purpose property. The business has operated 9 years, has 12 full-time employees, gets no fee waiver, and occupies 11,000 square feet. The mortgage balance is $1,350,000 on a 2019 loan that bought the building, owed to a bank that won't make the new loan, with no federal guarantee or prepayment penalty. The owner itemizes $250,000 of business expenses: $140,000 on a business line of credit used for inventory and $110,000 of payroll and supplier bills due within 18 months.
| Step | Math | Result |
|---|---|---|
| Occupancy | 11,000 / 20,000 | 55%, above 51% |
| Financing ceiling | 90% x $2,000,000 | $1,800,000 |
| Room for business expenses | $1,800,000 - $1,350,000 | $450,000 |
| Total bank plus CDC financing | $1,350,000 + $250,000 | $1,600,000 (80% of value) |
| CDC (504) loan at its 40% cap | 40% x $2,000,000 | $800,000 |
| Bank loan | $1,600,000 - $800,000 | $800,000, equal to the CDC loan |
| Owner's equity contribution | $2,000,000 - $1,600,000 | $400,000 (20%, above 10%) |
| Per-employee cap | 12 x $95,000 | $1,140,000, above $800,000 |
| Annual service fee, year one | 0.204% x $800,000 | About $1,632 |
The CDC figure is the net debenture before administrative costs, so the gross debenture and its fees run slightly higher. If the mortgage balance were $1,900,000 (95% of value), the owner would need $100,000 in cash, or other fixed assets SBA accepts, to stay within 90%, with no room left for business expenses.
How a conventional refinance differs on mechanics
A conventional refinance is one loan from one lender under its own credit policy. Federal interagency guidelines in 12 CFR Part 365 tell banks to keep internal loan-to-value limits at or below 85% for improved property, with exceptions allowed when other credit factors support them. Cash-out, terms, balloon payments and occupancy expectations come from each lender's policy and vary widely.
The 504 version has two lenders: the bank takes the first lien and the CDC loan the second. The CDC loan runs 10, 20 or 25 years at a rate set when the debenture is sold. Two approvals usually take longer than one, you pay program fees, and the CDC loan carries its own prepayment premium. In exchange you can reach 90% of value and fold itemized expenses into long-term debt.
One application through EQ Funding can reach SBA lenders and commercial real estate lenders that compete for the deal. EQ Funding doesn't lend; lenders and CDCs review your credit, cash flow and property and set any terms.