If you are a small business owner looking for a small business loan, you have a lot of options to consider to find the right one for your situation. From selecting the type of loan you need to find a lender who is determined to support your business goals, the path to financing can be a confusing one. The Small Business Administration (SBA) supports a number of loan programs to help small businesses obtain access to the necessary resources they need in order to grow. When looking for small business loans, the SBA 504 and the SBA 7(a) programs are two of the most prevalent and offer unique benefits to businesses that qualify. If you are confused as to which one you should choose we have made the decision-making a little easier for you. Comparing SBA 504 vs 7a loans to find which is best for your situation will offer insight into which one ultimately fits your business’s unique needs.

What is an SBA 504 Loan?

The SBA 504 loan is designed for businesses looking to invest in long-term, fixed assets like real estate or large equipment. It is structured as a partnership between a Certified Development Company (CDC) and a private lender to provide low-interest, fixed-rate financing.

Key Features of SBA 504 Loans:

• Loan Purpose: Primarily for real estate purchases, renovations, land acquisitions, and major equipment.
• Loan Structure:
  • 50% – Private lender (bank or credit union)
  • 40% – SBA-backed CDC loan
  • 10% – Borrower’s down payment (may increase for startups or special-use properties)
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• Loan Amount: Up to $5.5 million (or more in some cases).
• Interest Rate: Fixed, based on U.S. Treasury rates (typically lower than traditional loans).
• Term Length: 10, 20, or 25 years.
• Personal Guarantee: Required from owners with 20% or more ownership.
• Collateral: The financed asset (e.g., property or equipment) serves as collateral.

SBA 504 Loan Are Best Suited For:

The SBA 504 loan is best suited for businesses looking to finance long-term, fixed assets such as commercial real estate or major equipment purchases. If you are planning to buy or construct a new office, warehouse, or retail space, the 504 loan provides low-interest, long-term financing with minimal down payment requirements. Additionally, this loan is ideal for businesses seeking to upgrade or renovate existing facilities or invest in high-cost machinery that can enhance operational efficiency. With its structured repayment terms and lower interest rates, the SBA 504 loan is an excellent choice for businesses focused on expansion through physical assets.

What is an SBA 7(a) Loan?

The SBA 7(a) loan is the most flexible SBA loan, designed to cover a wide range of business expenses, from working capital to real estate and refinancing. Unlike the 504 loan, 7(a) funds can be used for multiple purposes, including business acquisition.

Key Features of SBA 7(a) Loans:

• Loan Purpose: Business acquisition, real estate, equipment, working capital, refinancing, and franchise financing.
• Loan Amount: Up to $5 million.
• Interest Rate: Variable or fixed (typically higher than SBA 504).
• Term Length: 25 years for real estate
• 10 years for working capital, equipment, or business acquisitions
• Personal Guarantee: Required for owners with 20% or more ownership.
• Collateral: Required for loans over $25,000 (real estate or business assets typically used).

SBA 7(a) Loan Are Best Suited For:

The SBA 7(a) loan is a versatile financing option best suited for business owners who need capital for a wide range of purposes, including working capital, business acquisitions, debt refinancing, equipment purchases, and franchise financing. If you are looking to acquire an existing business, expand your operations, or refinance high-interest debt, the flexibility of the 7(a) loan makes it a strong choice. Additionally, this loan is ideal for businesses that need funds to support day-to-day operations, cover payroll, or manage unexpected expenses. With both fixed and variable interest rate options, SBA 7(a) loans offer businesses the financial agility needed to seize growth opportunities while maintaining operational stability.

SBA 504 vs 7a: Lets understand the Differences

Loan Purpose

The SBA 504 loan is specifically designed for financing fixed assets such as commercial real estate, land, and heavy equipment. It’s ideal for businesses looking to purchase, renovate, or construct owner-occupied properties. In contrast, the SBA 7(a) loan is more flexible and can be used for a wide range of business needs, including working capital, business acquisitions, refinancing debt, and purchasing equipment or real estate.

Loan Structure & Funding Sources

The SBA 504 loan involves two lenders: a Certified Development Company (CDC) provides up to 40% of the total project cost, while a traditional lender (such as a bank) covers 50%, and the borrower contributes a 10% down payment. On the other hand, the SBA 7(a) loan is funded primarily by a single lender, such as a bank or financial institution, and backed by the SBA, making it a straightforward financing option.

Loan Amounts

For SBA 504 loans, borrowers can secure up to $5 million (or $5.5 million for specific energy-efficient projects). The SBA 7(a) loan, however, has a maximum loan amount of $5 million, making it suitable for businesses that need more general financing but not necessarily large-scale real estate or equipment investments.

Interest Rates & Repayment Terms

SBA 504 loans have fixed interest rates, offering long-term stability and predictable monthly payments. The repayment terms typically range from 10 to 25 years, depending on the asset being financed. In contrast, SBA 7(a) loans offer both fixed and variable interest rates, with repayment terms ranging from 10 years for working capital to 25 years for real estate loans. The flexibility of interest rates in the 7(a) program allows borrowers to choose a structure that best suits their financial situation.

Down Payment Requirements

For SBA 504 loans, borrowers are typically required to contribute at least 10% of the total project cost, making it a capital-efficient option for large-scale real estate or equipment purchases. With SBA 7(a) loans, down payment requirements vary but generally range from 10% to 20%, depending on the borrower’s credit profile, loan size, and business purpose.

Collateral Requirements

Since SBA 504 loans are primarily secured by the assets being financed (such as real estate or equipment), borrowers don’t need to provide additional collateral in most cases. On the other hand, SBA 7(a) loans may require additional collateral, especially for loans exceeding $350,000, to reduce lender risk.

Processing Time & Approval

The SBA 504 loan process involves both a private lender and a CDC, which can lead to a slightly longer approval timeline. However, for businesses focused on long-term investments, the benefits of low-interest, fixed-rate financing outweigh the processing time. SBA 7(a) loans, being managed by a single lender, generally have a faster approval process and can be ideal for businesses needing quicker access to capital.

At a high level, SBA 7(a) loans can be defined as general purpose loans that are used for anything from working capital, business acquisition, inventory, furniture, or debt refinancing due to the loan offering more flexibility in their terms. In comparison, SBA 504 loans are used if you need to purchase heavy equipment, land, or even owner-occupied real estate. Here is a more detailed breakdown of what you can use each loan for: SBA 7(a) Loan:

• Equipment and machinery
• Leasehold improvements
• Starting a business
• Real estate (except investment real estate)
• Maximum loan amount $5MM
• Up to 25 years real estate, up to 10 years business acquisition/equipment, 5-7 years working capital

SBA 504 Loan:

• Making improvements to your lot (landscaping and street upgrades)
• Construction or renovation
• Purchasing long-term heavy equipment or machinery
• Maximum Loan amount $20MM +
• 20 years of real estate and 10 Years Equipment

Key Differences

Interest rates for both loans are different as well with SBA 7(a) loans offering predominantly variable fixed rates options and SBA 504 loans offering exclusively fixed rates. Furthermore, a 504 loan’s interest rate does not require any outside collateral and fees are lower compared to a 7(a). You can ask for your 7(a) loan to be adjusted and tied to the prime rate you agreed on with your lender and collateral is required. SBA 504 loans are amortized over 20 years and SBA 7(a) loans are amortized over 25 years. Additionally, the typical loan structure for both is also different. SBA 504 loans require 10% down and 50% or more from a bank loan, whereas SBA 7(a) requires at least 10% down (often more) and 90% or less from a bank loan. [table id=6 /]

SBA 504 Loan vs 7a: Which One Should You Choose?

Call AVANA Capital and they will help you decide which SBA product is right for your business. AVANA Capital specializes in guiding borrowers through every step of the small business loan process to make sure they understand exactly what you are receiving. AVANA Capital’s team of industry professionals will make sure you are thoroughly educated before you make any major decision regarding an SBA 504 loan. We can deliver your pre-approval within 24 hours with closing in as little as 45-60 days.

In addition to quick approvals, we have very competitive rates and we allow your loan to be paid off over a period of 20 to 30 years. AVANA Capital has an easy-to-use loan builder form that allows you to send your application over to us in less than 10 minutes. We look forward to hearing from you and we cannot wait to customize a loan to fit your business’s unique goals.

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AVANA Capital’s team of industry professionals makes sure you are thoroughly educated before you make any major decision regarding an SBA 504 loan. We can deliver your pre-approval within 24 hours with closing in as little as 45-60 days. In addition to quick approvals, we provide you with competitive rates, which allow your loan to be paid off over a period of 20 to 30 years. AVANA Capital has an easy-to-use loan builder form that allows you to send your application over to us in less than 10 minutes. We look forward to hearing from you and we cannot wait to customize a loan to fit your business’s unique goals. For more information about SBA 504 vs 7(a) please contact AVANA Capital today.

Consider Several Factors When Choosing the Best Credit Union to Suit Your Needs

With more than 6,200 credit union businesses in the United States, it can be difficult to choose the one that’s right for you and your financial needs. Luckily, AVANA CUSO has more than 20 years of experience working with credit unions to provide services and products to borrowers. AVANA CUSO understands how to choose a credit union, the questions to ask, and the factors to consider.

Federal Credit Union vs. State Credit Unions
One of the first steps in choosing a credit union is deciding between a federal credit union (FCU) and a state credit union. The major difference is that a federal credit union is regulated by the National Credit Union Association (NCUA), while a state-chartered credit union must adhere to state guidelines. These regulations vary by state. FCUs are also insured by the National Credit Union Share Insurance Fund, while state credit unions are backed by either the United States government or the NCUA.

One advantage of an FCU is that interest rates have regulated maximums. State-operated credit unions can have higher limits or no limits, enabling these institutions to have higher rates. On the other hand, state regulatory authorities have greater control and familiarity with state-operated credit unions than the NCUA has over FCUs.

7 Questions to Ask When Choosing the Right Credit Union

How to Choose a Credit Union: Step-by-Step Guide
When it comes to managing your finances, choosing the right financial institution is crucial. Credit unions offer a member-focused alternative to traditional banks, providing competitive rates, personalized services, and community-driven benefits. However, with numerous credit unions available, selecting the right one requires careful consideration. Here’s a guide to help you make an informed choice.

Understand Your Financial Goals
Before selecting a credit union, assess your financial needs. Are you looking for a credit union to secure a commercial real estate loan, manage your savings, or access business lending solutions? Understanding your objectives will help you narrow down your options to credit unions that specialize in the services you require.

Check Membership Eligibility
Unlike banks, credit unions often have specific membership requirements. These may include residency, employment, industry affiliation, or community ties. Research the eligibility criteria to ensure you qualify before proceeding with your application.

Evaluate Available Services and Products
Different credit unions cater to different financial needs. Key services to look for include:

Credit Union Locations
A credit union’s location is a major factor when choosing the right credit union. To easily reach your funds in case of an emergency, choose a credit union in close proximity to your home. You’ll also want to find out the number of branches and ATMs available. Although credit unions were previously known to have scant locations, many are growing in quantity, and most credit unions are members of the Co-op network providing access to ATMs nationwide without additional fees.

Technology
Many believe small financial institutions haven’t caught up with the technological times, but that is simply false. Credit unions have welcomed technology, such as online banking and mobile banking, to provide their members with greater access and service. Determine the types of technology you need from a credit union, whether it be mobile check deposit or Apple Pay, to make a decision.

Compare Interest Rates and Fees
Credit unions are known for offering lower fees and better interest rates compared to traditional banks. Compare rates on loans, credit cards, and savings accounts to maximize financial benefits. Pay attention to maintenance fees, overdraft charges, and transaction costs.

Assess Customer Service and Member Benefits
Since credit unions operate with a member-first philosophy, quality customer service is a key advantage. Consider the following:

Consider the Credit Union’s Reputation and Stability
Research the credit union’s financial stability, customer reviews, and industry reputation. A well-established credit union with a strong financial standing ensures reliability and long-term support.

Understand Loan and Lending Policies
If you’re seeking a commercial real estate loan or business financing, carefully review the credit union’s lending policies. Look for:

Look at Community Involvement
Many credit unions are deeply involved in their local communities, supporting charitable causes, small businesses, and financial education initiatives. If social responsibility is important to you, choose a credit union that aligns with your values.

Compare with Other Financial Institutions
Before making a final decision, compare your shortlisted credit unions with other financial institutions, including banks and online lenders. Ensure you’re receiving the best combination of services, rates, and member benefits.

About AVANA CUSO

Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO offers competitive and collaborative commercial real estate loans. We partner with credit unions and brokers and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of loans. AVANA CUSO is a proud member of the AVANA Family of Companies.