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 […]
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
SBA 504 Loan:
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 /]
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.
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.
AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate. Established in 1998.
AVANA CUSO Launches Webinar Series
/in PressComparing SBA 504 vs 7(a) Loans: What’s Best for Your Business?
/in InsightsIf 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 […]