SBA 504 loans for hotels and motels, with 15% down
SBA 504 finances a hotel with three pieces: a bank first mortgage for 50% of the project, a fixed-rate loan from a certified development company (CDC) for up to 35%, and at least 15% from you, because SBA treats hotels as special-purpose property. In October 2026 pricing the CDC’s 25-year rate was 6.97%, fixed for the life of the loan.
Motel Loans is not affiliated with the U.S. Small Business Administration or any CDC. The rules are from SBA's SOP 50 10 8.1 (effective October 1, 2026) and its FY2027 fee notice, cited at the end.
How the money stacks up
| Piece | Share of project | Who lends | Rate |
|---|---|---|---|
| First mortgage | 50% | Bank or other lender | Set by the bank |
| SBA 504 debenture | up to 35% | CDC, funded by an SBA-guaranteed bond sale | Fixed; 6.97% for 25 years in October 2026 pricing |
| Owner equity | at least 15% | You | n/a |
For a new business (one under two years old) on a special-purpose property, the owner puts in 20% and the debenture drops to 30%. The debenture is capped at $5,000,000 per business, so on a large project the bank’s share grows.
The 6.97% comes from the monthly pricing published by SomerCor, a CDC, for the debenture sale priced October 8, 2026. SBA prices the 20- and 25-year debentures off the 10-year Treasury, so the rate changes every month. Your CDC will quote the current one.
A worked example
Same motel as in our 7(a) guide: a $3,200,000 price, a $400,000 PIP and $100,000 of costs, for a $3,700,000 project, all of it eligible fixed assets.
- You: 15% = $555,000.
- Bank: 50% = $1,850,000. If the bank lends at 8.50% over 25 years, that’s $178,760 a year.
- CDC: 35% = $1,295,000 at 6.97% over 25 years, $109,536 a year.
- Total payment: about $288,300 a year.
Compare a 7(a) loan for 85% of the same project, $3,145,000 at the 10.00% cap: about $342,900 a year. The 504 structure costs $185,000 more cash up front in this example and saves about $54,600 a year in payments, if the bank prices its piece at 8.50%. The bank rate is the assumption to check; put your own quote into the calculator.
What 504 will and won’t pay for
504 pays for long-term fixed assets: land, the building, construction and renovation, and furniture and equipment with a long enough life. On a hotel purchase it can fund the real estate and the PIP work. It can’t fund goodwill, receivables or working capital. If you’re buying an operating motel where part of the price is goodwill, that part has to be financed separately, for example with a 7(a) loan alongside the 504.
On a change of ownership, SBA also requires that you end up owning 100% of the business and that the seller does not stay on as an officer, director, owner or key employee.
The job rule
A 504 project has to create or keep one job for every $95,000 SBA guarantees, or meet one of SBA’s community or public policy goals. A $1,295,000 debenture implies about 14 jobs. On a purchase, retained jobs count only if the application shows a reasonable basis to conclude they would be lost without the change of ownership, for example a statement from a seller who would otherwise close. The CDC documents it.
Fees for FY2027
For 504 loans approved from October 1, 2026, SBA charges an upfront guaranty fee of 0.50% and an annual service fee of 0.203%. Both are waived for businesses in rural areas. The CDC also charges a processing fee of up to 1.5% of the net debenture, closing costs of up to $10,000, and a servicing fee, and the bank pays a one-time 0.50% participation fee on the first mortgage. Several of them can be financed as part of the debenture.
Who qualifies
The same core rules as 7(a): 100% of owners must be U.S. citizens or U.S. nationals living in the U.S. (SBA Policy Notice 5000-876441, effective March 1, 2026; green-card holders are no longer eligible); the hotel must earn more than half of its revenue from guests staying 30 days or less; the brand, if any, must be on SBA’s Franchise Directory; and the business must meet SBA size standards. SOP 50 10 8.1 sets 504’s minimum debt service coverage at 1.15x.
When 504 is the better fit
- You’re building a new hotel or doing a large renovation and want a long fixed rate on most of it.
- The price is mostly real estate, not goodwill.
- You have the extra 5% down and can wait for two lenders to close.
When the deal includes a lot of goodwill or working capital, or you need to close fast with one lender, 7(a) is usually simpler. Send your deal to Janover Capital and ask about both structures.
Sources
- SBA, SOP 50 10 8.1, Lender and Development Company Loan Programs, effective October 1, 2026: Section C (504), the limited or special-purpose property list (“Hotels, motels, and other lodging facilities”), and change of ownership rules.
- SBA Information Notice 5000-881796, FY2027 504 fees, effective October 1, 2026.
- SBA Policy Notice 5000-876441, “Update to Citizenship and Residency Requirements,” published February 2, 2026, effective March 1, 2026.
- SomerCor, “October 2026 SBA 504 Interest Rates,” priced October 8, 2026.
Questions people ask
Why do hotels need 15% down on an SBA 504 loan instead of 10%?
SBA classifies hotels, motels and other lodging as limited or special-purpose property. In 504 that adds 5 points to the owner's contribution, so the owner puts in at least 15% and the CDC debenture covers no more than 35%. A new business buying or building a hotel puts in at least 20%.
Can SBA 504 pay for the goodwill in a motel purchase?
No. 504 pays only for long-term fixed assets such as land, the building, improvements and equipment. Goodwill, receivables and other non-fixed assets have to be financed some other way, which can include a separate SBA 7(a) loan.
Is the 504 rate fixed?
The CDC part is fixed for its full term of 10, 20 or 25 years. The bank's first mortgage is a separate loan, and its rate can be fixed or variable depending on the bank.