Which SBA loan is right for you?
SBA 504 Loan vs. SBA 7(a): Which is right for your small business?
When growing a small business, funding is often one of the first challenges owners face. With multiple types of financing available, it can be daunting to assess which type of loan suits your business needs. Fremont Bank is a top SBA lender and here to support small business growth by helping leaders navigate the process of choosing the right financing. One of the first steps in this process is learning about the SBA loan options available.
SBA, or the Small Business Administration, is the federal agency that helps small business owners get access to conventional loans guaranteed by the government. Unlike traditional business financing, SBA loans benefit small businesses by offering low down payments, longer terms, and the ability to finance closing costs, working capital, and other project costs into one loan.
As you’ve set out to explore which type of SBA loan may be right for your business, you’ve probably heard of two of the more popular loans — SBA 504 and SBA 7(a). As a Top SBA Lender in the San Francisco Bay Area and authority on SBA lending, Fremont Bank SBA experts have laid out the key differences between SBA 504 and SBA 7(a) to help you make the right choice for your business.
SBA 504 loan vs. SBA 7(A) loan at-a-glance comparison
| SBA 504 loan (Commercial real estate & equipment) 90% fixed-rate |
SBA 7(a) loan (General purpose) |
|
|---|---|---|
| Loan size | Minimum — $125,000 Maximum — $20 million+ |
Minimum — $50,000 Maximum — $5 million |
| Interest rate | Fixed | Predominantly variable; some fixed-rate options |
| Terms | 25 years — real estate 20 years — real estate 10 years — equipment |
Up to 25 years — real estate Up to 10 years — business acquisition, equipment 5 to 7 years — working capital Weighted average for mixed-use requests |
| Down payment | 10% borrower | Minimum 10% borrower (often more) |
Source: CDCLoans.com
One of the key differences between the SBA 504 and SBA 7(a) stems from the loans intended use. An SBA 504 loan is commercial real estate financing for expenses like the purchase of land or buildings, improvements to facilities, equipment, or ground-up construction. The SBA 7(a) loan can be seen as more general purpose, with funds being used to buy a business or obtain working capital. The common confusion between these two types of loans often arises when borrowers look to finance real estate and are offered only the SBA 7(a).
The SBA loan program you’ll want to apply for depends on the size, age, and goals of your business.
“[Fremont Bank] fully understood us, understood our company — what we’re going through — and was ready to really help us out and take us to the next level. — Brad Johnson
Fremont Bank SBA specialists are here to help.
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