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SBA 504 Loan Vs 7a: What's the Best Fit to Purchase Property?
SBA 504 Loan Vs 7a: What’s the Best Fit to Purchase Property?
SBA 504 Loan Vs 7a What's the Best Fit to Purchase Property

SBA 504 Loan Vs 7a: What’s the Best Fit to Purchase Property?

SBA 504 Loan Vs 7a: What’s the Best Fit to Purchase Property?

When it comes to purchasing property for your business, acquiring the right financial backing is crucial. The Small Business Administration (SBA) offers two popular loan options: the SBA 504 and the SBA 7a. Both programs cater to small businesses, but their application, usage, and terms vary significantly.

The SBA 504 loan is primarily designed for asset acquisition, including real estate, construction, and equipment, making it a potential fit for businesses looking to purchase property. On the other hand, the SBA 7a loan offers more general use, from refinancing existing debt to working capital. In this blog, we’ll uncover these two loan types, emphasizing property purchase scenarios.

What is an SBA 504 loan?

The SBA 504 loan, or the CDC/504 loan, is a government-backed financing program designed to promote small business growth and job creation. It offers businesses, franchises, and manufacturers a way to purchase or improve commercial real estate, heavy machinery, equipment, and construction at below-market rates for non-special-use properties. SBA 504 loans allow refinancing as long as the debt being refinanced was mostly used to acquire an eligible fixed asset. 7A loans are also eligible for refinancing by a 504 loan.

Learn more about the SBA 504 program!

How it Works

Certified Development Companies (CDCs) approved by the SBA aid in administering and funding the loans, which external lenders partly finance. The SBA 504 program provides borrowers with fixed asset financing, distributing the funds amongst three parties:

  • The business owner (contributes a minimum of 10%)
  • A reputable lender or bank (covers up to 50%)
  • The CDC (provides the remaining 40%)

Obtaining an SBA 504 loan requires passing multiple checkpoints to reach eligibility. It’s important to ensure your business matches the preconditions, which include having a net worth of less than $15 million, an average after-tax net income of less than $5 million over the past two years, a US business permit, certified management experience, and a solid business plan. You must also plan to use the loan proceeds for fixed asset acquisition or improvement and demonstrate how to repay the loan.


  • Low down payment
  • Up to 90% financing coverage
  • Below market fixed interest rate
  • Long, flexible amortization periods
  • Does not take large business assets as collateral
  • Helps working lines of capital credit
  • Minimizes credit risk
  • Fixed asset financing

What is an SBA 7a loan?

The SBA 7a loan is another significant offering from the Small Business Administration. Unlike the SBA 504 loan, primarily targeted at fixed asset acquisition, the SBA 7a loan offers many uses to help small businesses. This program allows business owners to use funds for various purposes, including working capital, refinancing existing debt, purchasing furniture and fixtures, and even acquiring real estate. However, the expansive nature of the 7a loan can lead to higher interest rates and variable terms compared to the 504.

How it Works

To qualify for an SBA 7a loan, a business must meet the SBA’s definition of a small business and demonstrate repayment ability. Additionally, the loan proceeds must be used for an eligible business purpose. While SBA 7a loans can be used for property purchases, they don’t offer the same benefits as 504 loans in this context.


  • Up to 85% financing for purchases
  • Maximum loan amount of $5 million
  • Flexible use of funds

SBA 7a loans have interest rates generally higher than the SBA 504 loan and can be variable, potentially leading to uncertainty in the long run. On top of that, while the SBA 7a loan does not restrict the type of property to be purchased, it may require more collateral and a higher down payment than the 504.

Why the SBA 504 Loan is the Best Fit for Purchasing Property

Using any SBA loan to purchase property is a great choice, but the SBA 504 loan stands out for several compelling reasons. One of the key advantages is the lower down payment requirement, typically around 10%, which can make a big difference in preserving cash flow for businesses. This compares favorably to the SBA 7a loan, which often requires higher down payments.

The SBA 504 loan also offers fixed interest rates, which brings predictability to your financial planning, shielding your business from possible interest rate hikes over the loan term. This long-term stability can be a significant advantage over the SBA 7a loan, which features variable interest rates that could lead to higher payment amounts over time.

The 504’s versatility means businesses can utilize the loan to purchase commercial property, build a new facility, or even upgrade their equipment under the same program. In this case, choosing to purchase property with the SBA 504 loan may be a preferred choice for businesses.

Take the Next Step To Invest

For more information on the SBA 504 loan vs. 7a in North Carolina, Chesapeake, Virginia, and Maryland, reach out to our leading CDC experts at 504 Capital. We will help guide you through the process so you can properly purchase, lease, renovate, or improve commercial real estate, buildings, and equipment.

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