Comparing SBA 504 Loans to 7(a) Loans

At Community Business Finance, we offer both popular SBA loan guarantee programs: 504 and 7(a). While both programs require in depth business plans, they are designed for different business needs, with different goals in mind. The 504 loan is intended for economic development; therefore, its use is restricted to real-estate and fixed asset purchases, as these could promote job creation. The 7(a) loan can be used for working capital for almost any business expense. The 7(a) loan can also be used for real-estate loans, but the 504 loan is better suited for this need.

Commercial Real Estate and Equipment Financing

The SBA 504 loan program provides long-term, fixed-rate financing for the purpose of acquiring real estate or machinery or equipment for expansion or modernization. SBA 504 funding usually includes 10% equity from the borrower along with a loan of at least 50% of the total amount from a private-sector lender and a loan provided by Community Business Finance in an amount up to 40%, which is funded by a fully guaranteed SBA note, and which holds a second lien on the acquired real estate, machinery or equipment.

Loans for Working Capital and General Business Purposes

Community Business Finance also provides technical assistance for businesses that wish to obtain an SBA 7(a) loan. Money secured through 7(a) SBA loans can be used for a variety of business purposes including funding for working capital, machinery and equipment, furniture and fixtures, land and buildings, tenant improvements under lease agreements, and, under special conditions, refinancing prior debt. Basic 7(a) SBA loans can run for maturity periods of up to 10 years for working capital and generally up to 25 years for fixed asset financing.


SBA 504 LoanSBA 7(a) Loan

Loan Size


Interest Rate

Below Market, FixedUsually Variable


20 Years – Real Estate
10 Years – Equipment
25 Years – Real Estate
10 Years – Equipment
5-7 Years – Working Capital

Down Payment

10%Minimum 10% (often more)


If you need to buy commercial real estate or business equipment, the SBA 504 loan is the best choice. SBA 504 proceeds can be used to finance new construction or purchase a building and make improvements. Generally, SBA 504 loan rates are lower than SBA 7(a) loan rates, and they are fixed, not variable. 20-year fully amortized loan terms means your monthly payments will be lower and predictable.

SBA 504 loans do not get the same attention as SBA 7(a) loans when looking for financing. Commercial lenders often suggest SBA 7(a) loans when you are inquiring about financing. While the 7(a) loan is helpful for small businesses, it wasn't designed to finance commercial property.

7(a) loan proceeds can be used for short-term or long-term working capital and to purchase an existing business, refinance existing business debt, or purchase furniture, fixtures and supplies.

Contact Community Business Finance to review which SBA loan program is best suited for your business goals, and learn how we can improve the outcome of your loan.

Share this post