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Comparing SBA 7(a) and SBA 504 Loans

Two of the most popular loans offered by the SBA is the SBA 7(a) loan and the SBA 504 loan. Both loans assist businesses, but the funding they offer is intended for different purposes.

Overview of the SBA 7(a) and SBA 504 Loan

The SBA 7(a) loan is the most popular SBA loan program because of its flexibility. It can be used to supplement your working capital, purchase furniture, refinance current business debt, and expand your business. There are several different types of SBA 7(a) loans, ranging from the standard loan to the SBA Express loan. For loans under $25,000, lenders do not need to take collateral. For loans above $350,000, lenders must follow the collateral policies and procedures that are used for similarly sized non-SBA-guaranteed loans.

The SBA 504 loan is specifically intended for the purchase of fixed assets, such as real estate or land. There is an initial down payment of at least 10% of the loan amount; however, this is usually half of what banks require for conventional loans. Like the SBA 7(a) loan, the SBA 504 loans also have long repayment terms with monthly repayment: purchasing equipment has a 10-year repayment period while purchasing land or buildings has a 20-25 year repayment period.

Unlike the SBA 7(a) loans, a 504 loan does not require any collateral and its interest rate is fixed. Another difference is that a third party is also involved in 504 loans: an SBA-approved certified development company (CDC). A CDC is a nonprofit company that works with conventional financial institutions to provide funding for businesses that would otherwise have less access to high-quality financial resources.

SBA 504 Loan vs. SBA 7(a) Loan At-A-Glance Comparison


If you need to finance the purchase of land or real estate, then the SBA 504 loan is one of the best financing options for you. The 10% down payment and low interest rate makes the 504 loan an affordable and appealing financing option for borrowers.

If you want to be able to use your loan proceeds so that you can have access to additional working capital or want to expand your business, then you should consider the SBA 7(a) loan. Overall, the SBA 7(a) loan terms offer a high degree of flexibility with minimal costs.


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