How Does the SBA 504 Loan Compare to a 7(a) Loan and Other Loans Available?
SBA 504 Loans vs. SBA 7(a) Loans
Making an informed decision for your business funding needs is essential, but it can be difficult given the number of different financial tools available. One of the most popular small business loans on the market is the SBA 7(a) loan. How does it compare to the 504 loan program?
7(a) Loans:
You’ll find a number of similarities between 7(a) loans and 504 loans, but they are not the same. 7(a) loans:
Have a $5 million maximum
Requires 10 to 15% down
Interest tied to the prime rate
Are guaranteed to 85% for loans under $150,000, and 75% for those over $150,000, up to $3.75 maximum guarantee
Can be used for almost anything, including working capital and inventory
Are available in many formats. 5 and 10-year maturity rates are used for working capital and equipment, and 25 years for real estate.
Have no SBA fees if they are under $150,000 but incur graduated fees on amounts higher than $150,000
Standard business eligibility requirements
Have a prepayment penalty of up to 3 years
In contrast, 504 loans:
Permit loan sizes up to $5 million, or $5.5 million for small manufacturers
Requires 10% down except in specific instances (young startup and special-use real estate)
Interest set below market rate
Are guaranteed up to 90%
Have stringent use requirements, and are designed primary for the purchase of fixed assets, such as real estate or machinery
Have 10, 20 and 25 year terms
Lower fees than 7(a) loans for amounts over $150,000
More stringent business eligibility requirements
Have a prepayment penalty up to 10 years
Not sure if you are best served by a 504 loan or a 7(a) loan? You can download a comparison chart from the SBA here to get a better idea.
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