SBA 7(a) vs 504 Loans
Compare SBA's two most popular loan programs side-by-side. Learn which option is best for your business needs, budget, and timeline.
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Side-by-Side Comparison
Key differences between SBA 7(a) and 504 loan programs at a glance.
| Feature | SBA 7(a) | SBA 504 |
|---|---|---|
| Maximum Loan Amount | $5,000,000 | $5,500,000 total project |
| Interest Rates | Variable rates, currently 9.5-10.5% | Fixed rates, typically below market |
| Loan Term | Up to 25 years | 10-20 years |
| Down Payment | 10-15% | 10-15% |
| Use of Funds | Very flexible - any business purpose | Limited to real estate & equipment |
| Approval Speed | 30-60 days | 60-90 days |
| Prepayment Penalties | None for most loans | Possible on SBA portion |
| Rate Type | Variable (adjustable) | Fixed on SBA portion |
Loan Structure Differences
Understanding how each loan is structured helps you choose the right financing approach.
SBA 7(a) Structure
Single loan from one lender
Guaranteed by SBA
Borrower equity
SBA 504 Structure
Two-loan structure with three parties
Conventional bank financing
Fixed-rate SBA loan
Borrower equity
Which Loan Should You Choose?
Your choice depends on your specific business needs, timeline, and financing goals.
When to Choose SBA 7(a)
- Working capital needs
- Equipment purchases under $500K
- Business acquisitions
- Mixed-use financing (multiple purposes)
- Want payment flexibility
- Need faster approval
- Seasonal businesses
When to Choose SBA 504
- Commercial real estate purchase
- Major equipment purchases ($500K+)
- Want fixed interest rates
- Long-term asset financing
- Manufacturing businesses
- Need maximum financing (90%)
- Stable, predictable payments
Detailed Pros and Cons
Weigh the advantages and considerations for each loan type.
SBA 7(a) Loans
Advantages
- Maximum flexibility in use of funds
- Faster approval process
- Single lender relationship
- No prepayment penalties
- Available for working capital
- Longer terms for real estate (25 years)
Considerations
- Variable interest rates
- Potentially higher rates than 504
- May require more collateral
- Less favorable for large real estate purchases
SBA 504 Loans
Advantages
- Fixed interest rates on SBA portion
- Up to 90% financing available
- Below-market rates
- Excellent for real estate
- Builds business equity faster
- Predictable payment structure
Considerations
- Limited to real estate & equipment only
- More complex approval process
- Longer approval timeline
- Two separate loan payments
- May have prepayment penalties
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