SBA 7(a) Loans vs. SBA 504 Loans: Which One Is Right for You?

Feb 7, 2023

January 10, 2023

When it comes to real estate purchases, business owners and investors are often overwhelmed by the number of financing options available. Sometimes it’s difficult to identify the differences between each loan program.

SBA 7(a) and SBA 504 commercial loans are two popular paths to funding targeted at small business owners. At first glance, they seem quite similar. Both programs:

  • Are backed by the Small Business Administration
  • Can be used if the borrower’s business will occupy all (or most) of the property in question
  • Apply to many property types, from small office spaces to industrial facilities

Understanding SBA 7(a) Loans

SBA 7(a) loans are popular among small business owners. They are typically used to purchase property and working capital. They can even be used to fund a small business’s startup costs. Here are a few things you need to know about SBA 7(a) loans:

  • Loan amounts of up to $5 million are available
  • These loans offer terms of up to 25 years
  • SBA 7(a) loans are non-recourse and have fixed interest rates
  • There is a significant amount of paperwork involved with these loans, which can be intimidating to borrowers who aren’t working with a trusted commercial real estate broker
  • Investment properties are not eligible for SBA 7(a) loans

SBA 504 Loans: The Details

In many ways, SBA 504 loans are similar to their SBA 7(a) counterparts. Small business owners use them to finance commercial property or heavy equipment purchases. Read on to learn the characteristics of SBA 504 funding:

  • Unlike the SBA 7(a) program, SBA 504 loans can be used to purchase investment properties
  • Loan amounts of up to $15 million are available
  • SBA 504 loans offer fixed, competitive interest rates
  • The loan structure is somewhat complicated, with 50% of the funding coming from a traditional mortgage, 40% from a certified development company, and 10% from a down payment
  • These loans cannot be used to purchase working capital or consolidate debt
  • Similar to SBA 7(a) funding, SBA 504 loans have hefty paperwork requirements

Contact Us Today!

Are you a small business owner who needs funding to purchase property, heavy equipment, inventory, or startup costs? Contact us to see if you qualify for a loan program backed by the SBA!

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