Difference Between 7(a) and 504 Loans

If you are a business owner considering a Small Business Administration (SBA) loan to take your business to the next level, you might have already done some research and are left wondering what the difference between the 7(a) and 504 loans are.

There are similarities and differences between these two popular SBA loan programs in what the money can be used for, how much you can borrow, and the repayment terms.

Business Funding Group LLC (BFG) specializes in helping business owners apply for both types of SBA loans. After a discussion with you, we can determine which of the loan programs best fits your needs!

A comparison (Note to BluShark, taken from: https://cdcloans.com/504-vs-7a/ but edited)

	504	7(a)
Loan size	Up to $20M+	Up to $5M
Interest rate	Fixed	Variable, usually: Real Estate: prime +2.25% Working Capital: prime + 2.75%
Terms	Real Estate: 25 years	Real Estate: 25 years Working Capital: 10 years
Down payment	10% from borrower	Can be 0 For business acquisitions: 10%
Loan structure	50% Bank loan 40% CDC loan 10% Borrower down payment	100% from 1 lender Business Acquisition: 90% lender 10% Borrower
Use of proceeds	– Purchase building – Purchase fixed assets, such as equipment, furniture, fixtures etc.	– Purchase real estate – Business acquisition – Working Capital – Any business related expenses, such as: o Marketing o Hiring o Refinance debt
Real Estate Requirements	51% owner occupancy	51% owner occupancy

Qualify for SBA

The two main criteria to qualify for both SBA loan programs are:

– Credit score and credit history of both the business and its owners (more than 20%) – typically above 700 personal credit score

– Ability to repay / debt service ratio

Although the criteria for qualifying are the same for both loans, the debt service ratios can vary based on which loan program you ultimately choose.

504 vs. 7(a): Which SBA Loan is Right for You?

There’s no one-size-fits-all answer—choosing between an SBA 504 and 7(a) loan depends on your priorities.

Give us a call for personalized guidance, in the meantime here are some key pros and cons to consider:

	Pros	Cons
504	Borrow more money Fixed rates	Less flexibility Put down 10% Multiple parties involved (CDC and bank) Takes longer to fund than 7(a)
7(a)	Possibility of 0 money down Flexible use of proceeds You can borrow money for both real estate and working capital under the same loan, paid back over 25 years as long as half the money is for RE Funds faster than 504	Floating rates Other collateral needed, if available

Call BFG to Discuss SBA Loan Program Options

If you are a business owner looking to apply for an SBA loan, knowing the difference between 7(a) and 504 loans can help you determine what path to take. Choosing the right loan program begins by considering how much money you need, what you need the funds for, and other business goals.

At BFG, we have decades of experience dealing with SBA loans. We know the ins and outs of both 7(a) and 504 loans and use our expertise to help small businesses like yours thrive. Call us today to find out which loan is right for you!