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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