SBA 504 loan and 7a loan  are two Small Business Administration’s loan programs. These initiatives were taken by the United States government for affordable funding to small businesses across America. After the introduction of these initiatives many decades ago, business financing options have become better for small businesses. The amount is large and there is no such issue getting the approval. As compared to traditional banks loans, the processing of SBA loans is easier. Also, the eligibility criteria aren’t strict.   

Everything is perfect with SBA loan programs. But, sometimes business owners make an honest mistake by choosing the wrong option. They choose SBA 504 loan in place of SBA 7a loan and vice versa. And if the selection is wrong, you will not get what you want.

In this post, we will discuss the difference between SBA 504 loan and the SBA 7a loan program so that you choose the right option.

SBA 504 loan program: An introduction 

SBA 504 loan program is best for financing fixed business assets. If you want to purchase land or existing buildings, make improvements to existing facilities, purchase equipment, or ground-up construction commercial estate, you should apply for SBA 504 loan. This program aims to promote growth and job creation.


SBA 7a loan program: An introduction 

SBA 7a loan program is best for general business financing. If you want to have access to working capital, purchase furniture, and fixtures, make leasehold improvements, or acquire an existing business, you should apply for an SBA 78a loan.


Difference between SBA 504 loan and SBA 7a loan program based on different parameters


Loan amount – There is a maximum loan amount in SBA 504 program because it will only fund up to $5 million. Even in SBA 7a, the maximum loan amount is $5 million but it changes based on the type of loan. In SBA 7a Express loan, you will get a maximum of $350,000.

Loan tenure- SBA 504 loan is given by a lender for 10 or 20 or 25 years. But, an SBA 7a loan is given for 7-25 years. The tenure depends on your paying capability and the terms and conditions of the lender.

Loan interest rates- The SBA 504 loan program follows a fixed rate approach based on US treasury rates. On the other hand, you can enjoy variable interest rates in the SBA 7a loan program between 2.25%-6.5%. The difference depends on the base rate of the loan program.

Loan borrowing fee- In the SBA 504 loan program, there are different types of fees that the borrowers have to pay. It includes CDC servicing fee, CSA fee, guarantee fee, and third party fee. In some cases, the borrowers have to pay a prepayment penalty. There is only a guarantee fee in the SBA 7a loan program. If required, the other fees are charged by the lending partners.

Loan collateral – Just like traditional loans, collateral is required in SBA loan programs. In SBA 504 loan program, the collateral required is usually the real estate/equipment financed. On the other hand, the collateral required varies based on business and loan use in the SBA 7a loan program.

Loan down payment- Both SBA initiatives include down payment. Lenders ask for a10%-30% down payment in SBA 504 loan and a 10% down payment in the SBA 7a loan program.


How to choose

Simply, consider your business requirements and how you are going to use the loan amount. There is nothing specific to choose between SBA 504 loan and the SBA 7a loan program.