Both SBA 504 and 7(a) loans are long-term, low-interest business loans. The main difference between them is their eligibility criteria and the borrower’s ability to repay the loan.
SBA 504 loans
SBA 504 loans are a type of loan that can be used to finance the purchase or refinancing of fixed assets, including real estate and equipment. SBA 504 loans can also be used to refinance existing debt, but they cannot be used for working capital.
The two main types of 504 loans are:
1. SBA 504 fixed asset financing
2. SBA 504 working capital loans
SBA 504 fixed asset loans are designed for the purchase or refinancing of fixed assets, such as real estate and equipment. They can also be used to refinance existing debt. SBA 504 working capital loans are not available through the 504 program; they must be obtained from another source.
SBA 7A loans
SBA 7A loans are a special type of SBA loan for small businesses that want to purchase real estate. As stated by experts like Lantern by SoFi, “For example, the 7(a) loan, the most popular SBA loan, provides up to $5 million for renovation, construction, or the purchase of equipment, among other things.” The sba loan interest rates on an SBA 7A loan is based on the lender’s costs and can be fixed or variable, depending on what you have the best chance at getting approved for.
The SBA 7A loan is a great option for small businesses that want to buy or build a building. If you’re looking for financing, this is one of the best loans available from the government.
The SBA 7A loan is a powerful tool for business owners who want to purchase or construct a building. With an SBA 7A loan, you can get up to $5 million and have repayment terms that are fixed or variable, depending on what you’re approved for.
Know the differences between these two types of SBA loans.
You can use SBA 7A loans for both new and established businesses. But there are some important differences between them:
- The maximum loan amount for a SBA 7A loan is $5 million, not including the 10% borrower equity contribution (up to $150,000). The maximum size of the 504 loan is $5 million.
- You have to have at least five years’ operating history as an ongoing business to apply for an SBA 7A loan. This means that if your business has been in operation fewer than five years, it won’t qualify for a 504 loan either—unless you’re able to secure financing from another source first and then refinance your previous debt when it becomes available again after five years of operations.
The maximum size of the 504 loan is $5 million, not including the 10% borrower equity contribution (up to $150,000). For example: If you’re looking for a loan of $3.5 million, you can only get this amount using an SBA 7A loan. If you’re looking for more than that amount—say $8 million—you’ll need to apply for an SBA 504 loan too.
The SBA 504 and 7A loans are very similar in many ways. They both offer a low-cost source of funding for small businesses, including startups and existing companies looking to expand. However, there are some key differences between the two programs you should be aware of when considering which type of loan is best for your business needs.
