sba 504 vs 7a
Apr 26, 2019

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 finding 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 that 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 7(a) loans to find which is best for your situation will offer insight into which one ultimately fits your business’s unique needs.

SBA 504 vs SBA 7(a)

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 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 a SBA 7(a) requires at least 10% down (often more) and 90% or less from a bank loan.

 SBA 504SBA 7a
Goal of programEconomic development and job creationCapital access
PurposeFor real estate/equipment
No working capital on acquisitions
Working capital is allowed under SBA 504 debt refinance
Business purposes (equipment, working capital, business acquisition, real estate, etc.)
Loan sizeBank: Capped at 65% of total cost
CDC: Capped at $5M for conventional project and $5.5M for green projects
Multiple SBA 504 loan under Green projects is allowed
$5M for most projects and
$5.5M for manufacturing
Loan-to-valueBank: minimum of 50%
CDC: maximum of 40%
Maximum of 90%
Debenture termBank: Variable or fixed rate, at least 7-year term for a 10-year CDC loan, and at least 10-year term for a 20-year CDC loan
CDC: fixed rate, 20 years for real estate, and 10 years for equipment
Variable or fixed rate
Term between 7 and 25 years depending on use of funds and applicable collateral
Lien positionBank has exclusive first lienTypically bank holds first lien with guarantee from SBA
Combination with USDACannot be combinedCan be combined
Payment of other SBA loanCannot be used to pay 7a loanCan be used to pay SBA 504

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 you 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 allows 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.

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