Differences Between SBA 7(a) and 504 Loans

SBA 7(a) Loan Program

General-purpose loan program that provides working capital, funds for expansion, equipment purchases, and more.

Maximum Loan Amount: Up to $5 million.
Use of Funds: Can be used for a variety of business purposes, including real estate, equipment, working capital, and refinancing existing debt.
Repayment Terms: Flexible terms, generally ranging from 7 to 25 years.

SBA 504 Loan Program

Primarily for financing real estate and major fixed assets.

Structure: Involves collaboration between a Certified Development Company (CDC), a lender, and the borrower.
Maximum Loan Amount: Up to $5.5 million.
Use of Funds: Designed for purchasing land, buildings, and equipment. Cannot be used for working capital or inventory.
Repayment Terms: Typically has a 10- or 20-year term for the CDC portion and a term of up to 25 years for the lender portion.

Key Differences:

Loan Amounts

7(a) Loan: Maximum loan amount is $5 million.
504 Loan: Maximum loan amount is $5.5 million.

Use of Funds

7(a) Loan: Versatile, can be used for various business purposes.
504 Loan: Primarily for real estate and fixed assets, not for working capital.

Collateral Requirements

7(a) Loan: Collateral requirements vary but may include business assets.
504 Loan: Typically involves collateral in the form of the assets being financed.

Repayment Terms

7(a) Loan: Flexible terms, generally 7 to 25 years.
504 Loan: Typically 10- or 20-year term for the CDC portion and up to 25 years for the lender portion.

Eligibility

7(a) Loan: Broad eligibility, suitable for various business types.
504 Loan: Primarily for businesses with a tangible net worth under $15 million and an average net income under $5 million.

These SBA loan programs are designed to provide small businesses with financing options that suit their specific needs, whether for general business purposes or specific long-term investments.