Purchasing Real Estate with SBA 504 Loans versus 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 promote job creation. The 7(a) loan can be used for working capital for almost any business expense. While the 7(a) loan can also be used for real estate purchases, the 504 loan is better suited for this purpose.

504 Loans: Commercial Real Estate and Equipment Financing

Community Business Finance's 504 Loan Program provides long-term, fixed-rate financing for the purpose of acquiring real estate. 504 loan funding usually includes 10% equity from the borrower along with a loan of at least 50% of the total project cost from a commercial lender and a loan provided by Community Business Finance in an amount up to 40%, which is fully guaranteed by the SBA.

7(a) Loans: Working Capital and General Business Purposes

Community Business Finance also provides 7(a) loans. Money secured through 7(a) loans can be used for a variety of business purposes including funding for working capital or land and buildings. Basic 7(a) 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$125,000 - $10,000,000$50,000 - $5,000,000
Interest RateBelow market, fixedUsually variable

20 years – real estate

10 years - equipment

25 years – real estate

10 years – equipment

5-7 years – working capital
Down Payment10%Minimum 10% (often more)


As you can see, if you need to purchase commercial real estate Community Business Finance's 504 Loan Program is the better choice. 504 loan interest rates are lower than 7(a) loan rates, and they are fixed, not variable. With interest rates on the rise, a variable interest rate almost guarantees you will pay a higher rate in the future. You will also have a smaller down payment with a 504 loan, leaving you more working capital.

504 loans do not get the same attention as 7(a) loans when you are looking for financing. Commercial lenders often suggest 7(a) loans when you are interested in purchasing real estate, and the merits of the 504 Loan Program are never discussed. However, while the 7(a) loan is helpful for small businesses, it wasn't designed to finance commercial property.

Community Business Finance's 504 Loan Program offers lower fixed interest rates, as well as lower down payments, and can finance much larger project costs. Contact Community Business Finance to discover how our 504 Loan Program is better suited for a commercial real estate purchase, and learn how we can improve the outcome of your loan.

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