Both finance commercial real estate — but for different buyers, different property types, and different goals. SBA 504 offers a lower down payment and fixed rate for owner-occupied property. A conventional commercial mortgage moves faster and works for investment property too. Here is how to decide.
Commercial real estate transactions involve more documentation and moving parts than most business loans. PMF LA helps Los Angeles owners understand what structure fits their property and business profile before the process starts.
The two main paths to owning commercial property — compared across every factor that affects the decision.
| Factor | SBA 504 Loan | Conventional Commercial Mortgage |
|---|---|---|
| Property type | Owner-occupied only — business must use 51%+ | Owner-occupied or investment/rental property |
| Down payment | 10% established / 15% new business / 15–20% special use | Typically 20–35% |
| Loan amount | Up to $5.5M (higher with energy efficiency or manufacturing projects) | $250K to $10M+ depending on lender |
| Rate structure | Fixed below-market rate on SBA portion (40%); market rate on lender portion (50%) | Fixed or variable — market-rate |
| Term | 10 or 20 or 25 years on SBA portion | 5–30 years depending on lender and structure |
| Process complexity | More complex — CDC + SBA-approved lender + SBA all involved | More direct — lender to borrower |
| Time to close | 4–8 weeks typical | 3–6 weeks typical |
| Prepayment | Prepayment penalty applies (declines over 10 years) | Varies by lender — some have penalties, some do not |
| Best for | Owner who wants lowest down payment and fixed rate on long-term hold | Investor, faster close, or when simplicity is priority |
SBA 504 is a three-party structure — different from a conventional commercial mortgage. Understanding how it works helps you decide if the tradeoffs are worth it.
A bank or non-bank SBA-approved lender provides 50% of the project cost as a conventional first mortgage. This portion carries a market rate.
A Certified Development Company (CDC) provides 40% of the project cost, backed by an SBA debenture. This is the portion with the fixed below-market rate and long term.
The business owner provides the remaining 10% as a down payment. For new businesses or special-use properties, this may be 15–20%.
The lender loan and the CDC/SBA debenture close at the same time. The business ends up with two loans — one to the lender, one to the CDC — for the same property.
You own a business that will occupy most of the building. You want to stop paying rent and build equity. You have time for the process and want the fixed rate and low down payment that SBA 504 offers.
→ SBA 504 loan
You are buying a property as an investment — tenants will occupy it, not your business. Or the property is mixed-use and you need investor financing. SBA 504 is not available for this scenario.
→ Commercial mortgage
You have a competitive situation or a time-sensitive close. The SBA 504 three-party structure takes longer. A conventional commercial mortgage can often close in 3–4 weeks when the borrower profile is clean.
→ Commercial mortgage
Not every business qualifies for SBA 504. Here are the key eligibility factors before starting the process.
Eligibility criteria are set by the SBA and subject to change. PMF LA has a direct partnership with Newtek, a nationally recognized SBA preferred lender, and works with a network of SBA lenders and banks. PMF LA helps you evaluate your profile against these requirements before beginning the process.
PMF LA helps business owners and investors compare SBA 504 loans and commercial mortgages before committing to a path. Based in Los Angeles at 10100 Santa Monica Blvd. Serving businesses across the U.S. and Canada.