SBA loans For owners choosing between SBA's two main loans
SBA 7(a) or 504: which loan fits what you're buying?
Both come from a lender with SBA's backing. A 7(a) can pay for almost anything a business needs. A 504 is only for buildings, land and long-lasting equipment, and fixes the rate on part of the loan for up to 25 years.
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SBA 7(a) vs 504 at a glance
The two loans side by side.
| What | SBA 7(a) | SBA 504 |
|---|---|---|
| What it pays for | Almost any business use: real estate, equipment, working capital, inventory, buying a business or a co-owner's share, and refinancing business debt. | Land, buildings, and machinery and equipment with a useful life of 10 years or more, plus some refinancing. Not working capital, inventory, or real estate rented to others. |
| How much | Up to $5 million. | The CDC usually lends 40% of the project cost, up to $5.5 million. The bank's loan comes on top of it. |
| Who lends | A bank or other SBA lender. SBA guarantees 75% of loans over $150,000, and 85% of smaller ones. | Two lenders. A bank lends about 50% of the cost, and a Certified Development Company (CDC) lends up to 40%, fully backed by SBA. |
| Down payment | At least 10% of the cost on real estate, and at least 10% to buy a business or start one. | At least 10%. 15% for a business under 2 years old or a special-purpose building, like a hotel or car wash, and 20% for both. |
| Rate | Agreed with the lender, up to SBA's cap. Most move with Prime, and on loans over $350,000 a variable rate can be at most Prime plus 3 points, 10.00% with Prime at 7.00% on October 27, 2026. | The bank sets the rate on its part. The CDC's part has a fixed rate for its whole term, set a little above the 10-year Treasury when SBA sells the loan to investors: 6.97% on 25-year loans sold in October 2026, fees included. |
| Repaid over | Up to 25 years for real estate. Usually 10 years or less for anything else, unless it's equipment that lasts longer. | 10, 20 or 25 years. |
| SBA's fees | A one-time guaranty fee on the part SBA guarantees: 2% on loans up to $150,000, 3% up to $700,000, and 3.5% above that (3.75% on the guaranteed part over $1,000,000). | SBA's 0.5% guaranty fee and 0.25% funding fee, the CDC's 1.5% processing fee and closing fee, and 0.4% to sell the loan to investors, all built into the CDC loan. SBA also charges 0.5% on the bank loan. |
| Collateral | What the loan buys. Above $350,000, if business assets don't fully secure it, SBA wants a lien on owners' homes or other real estate with 25% or more equity. | The property: the bank takes a first lien and the CDC a second. |
| Jobs | No jobs test. | One job created or kept for every $95,000 of the CDC loan ($150,000 for small manufacturers and energy projects), or one of SBA's community goals. |
| Debt coverage the check holds it to | 1.15x, or 1.25x to buy a business or a co-owner's share. | 1.15x. |
SBA's fees are for loans approved from October 1, 2026 to September 30, 2027. SBA waives its guaranty fee for manufacturers, food supply chain and rural businesses on loans up to $700,000.
Worked example
A $1,000,000 building, bought three ways.
A made-up business that has run for more than 2 years buys a $1,000,000 building it will use itself, and pays its closing costs at closing. The closing costs are the check's own estimates of typical bank and third-party costs, and SBA's fees are SBA's published ones.
| What | Conventional | SBA 7(a) | SBA 504 |
|---|---|---|---|
| Down payment | $200,00020% of the price | $100,00010% of the price | $100,00010% of the price |
| Borrowed | $800,000 | $900,000 | $913,000bank loan $500,000, CDC loan $413,000 |
| SBA's fees | None | $23,625Paid at closing | $15,500$13,000 of it built into the CDC loan |
| Closing costs paid at closing | $15,500 | $38,125With SBA's fee | $15,000With SBA's fee |
| Cash to bring to closing | $215,500 | $138,125 | $115,000 |
Both SBA loans need half the conventional loan's down payment. The 504 needs the least cash at closing, $115,000 against $138,125 for the 7(a), mostly because of the 7(a)'s $23,625 guaranty fee. The conventional loan needs $215,500. The 504 borrows a little more, because the CDC's fees are added to its loan.
Lenders may let you add the closing costs to the loan instead, which lowers the cash you bring to closing. It's worth asking for.
What this leaves out is the payment each year, which depends on the rates you're offered and decides whether your cash flow covers the loan. When you're buying property, your check puts all three side by side with your own numbers: the down payment, rates, yearly payments, cash to bring to closing, debt coverage and grade for each.
Which SBA loan is right for you?
Start with what the loan is for.
Working capital, inventory, or buying a business
A 7(a). A 504 can't pay for these. To buy a business or a co-owner's share, SBA wants at least 10% of the cost from you, and cash flow of at least 1.25 times the payments.
A building or land your business will use
Either. A 504 fixes the rate on the CDC's part for up to 25 years, and on a larger loan its fees often come to less than a 7(a)'s. A 7(a) is one loan with one lender, and one loan can cover the building and some working capital together.
A building you'll mostly rent to others
Neither. SBA needs your business to use at least 51% of an existing building, or 60% of a new one. A property bought to rent out is a conventional loan, usually with 20% down.
A new business, or a special-purpose building
Both are possible. A 504 then needs 15% down (20% for both), and a 7(a) for a start-up needs at least 10% of the total cost to open, with a projection the lender believes.
SBA loan requirements
What both loans need.
- Owners of 20% or more guarantee the loan.
- On a building, the business uses at least 51% of it, or 60% of one being built.
- Every owner is a U.S. citizen or U.S. national living in the U.S., under SBA's rules since March 2026.
- The business is for-profit, in the U.S., and not on SBA's list of businesses it can't lend to.
- The business can't get the same loan on reasonable terms without SBA's guaranty.
- Cash flow of at least 1.15 times every loan payment, in the latest year and the year before.
When you choose a 7(a) or 504, the check asks SBA's basic eligibility questions and says whether SBA likely can back the loan. Only the lender decides. The document checklist lists what each one asks for.
Sources: SBA's loan programs table and 504 loans page, SBA's SOP 50 10 8.1 (effective October 1, 2026), Information Notices 5000-881797 and 5000-881796 (fees for fiscal year 2027), and Procedural Notice 5000-875051 (7(a) maximum rates). The 504 rate is from NSDC (nsdc.com).
Will your cash flow cover it?
How a lender adds up your business's cash flow, and where each number is on your tax return.
See which loan your numbers support.
The check works out your debt coverage for the loan you choose, and on a property purchase shows all three side by side.
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