December 2019
Commercial Lending
What is considered a “Small” Business? SBA Size Qualifications and Guidelines

The Small Business Administration (SBA) adheres to specific size standards to determine eligibility for its loan programs, including the 504 program.  Even still, these size standards are quite generous, which means that more businesses can qualify for an SBA 504 loan.

SBA Size Qualifications and GuidelinesThe 504 Loan Program is a great option for small businesses that need funding to acquire, renovate or otherwise improve commercial real estate, purchase major fixed machinery and equipment or refinance commercial mortgage and other debt related to the small business.

When determining whether a small business client meets the SBA’s size criteria, the first thing to know is that the applicant small business owner and any affiliated businesses are considered on a combined basis.  That means, if your applicant small business owner also has ownership in other entities, the size of those entities will likely be added to the applicant business when determining eligibility.

The SBA offers 2 options that can be used to help meet the size qualification criteria.  Either can be used to determine whether the business meets the definition for “small” when applying for a 504 loan, and applicants are only required to meet 1 of the 2 standards.

The 504 Size Standard

The 504 size standard option looks at business financials. It includes a review of the net worth and net profit for the applicant (and, if applicable, its affiliates). To meet this size standard:

  The applicant’s net worth must be under $15 million and the business’s average annual net profit, averaged over the last 2 years of business, must be under $5 million.  To verify this, the SBA reviews tax returns as part of the application process.

  If the applicant business owner’s (and affiliates’) assets include real estate, the SBA considers the cost value of the properties, not the market value, which typically works in the applicant’s favor.

  The overall net worth calculation is based on tangible net worth, and intangible business assets, (such as goodwill) are deducted from the total net worth calculation.

The 7(a) Size Standard

The 7(a) size standard is also a valid measure for 504 loan eligibility. This option uses a comparison of the applicant business owner’s (and, if applicable, its affiliates’) revenues or number of employees, based on industry-specific guidelines.

  For applicants to the 504 program, this option is generally used when the applicant’s net profits and net worth exceed the 504 size standard.

  This size standard compares industry-specific benchmarks, such as revenue or number of employees, against corresponding measures for the applicant business and its affiliates.

  The SBA provides a list of industry benchmarks from the North American Industry Classification System (NAICS) and the applicant’s business type determines which benchmarks are used.  For example, NAICS uses a size standard of annual revenue below $8 million for a full-service restaurant, while the size standard for manufacturers is based on the number of employees.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates (no ARMs) and long amortization terms up to 25 years (no balloons) for the purchase of major fixed assets.

504 loans are paired with private-sector commercial loans and provide up to $5 million of aggregate SBA eligibility on standard 504 projects; up to $5.5 million per 504 energy efficient green project, not to exceed $16.5 million in the aggregate; and up to $5.5 million per eligible small manufacturing project with no limit on total SBA dollars available.  Loan amounts are SBA 2nd mortgage loan portions only with no limit on overall project dollar size.

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at  Phone: 850.681.3601 or toll-free at 800.504.LOAN.