Picking the wrong SBA loan can cost you weeks and thousands in extra interest. Last year, the SBA guaranteed $31.1 billion in 7(a) loans and $6.7 billion in 504 deals, proof that owners rely on these two programs when growth is on the line. Yet they serve different missions: 7(a) funds move quickly for almost any need, while 504 dollars lock in long-term, fixed-rate financing for real estate and heavy equipment. With prime hovering near 8.5 percent, many SBA offers now edge into double-digit territory—so choosing wisely matters more than ever. In the next few minutes, we’ll break down uses of funds, collateral, down payments, and approval speed so you can start an informed conversation with your lender and move forward confidently.
SBA 7(a) vs. 504 at a glance
Think of this section as your cheat sheet. Before we explore the details, scan the grid below and notice how each loan carries a different job title. One is the all-purpose utility player; the other is the heavyweight specialist built for property and large equipment.
Factor | SBA 7(a) | SBA 504 |
Primary purpose | Working capital, equipment, business acquisition, real estate when flexibility matters | Owner-occupied real estate, heavy equipment, ground-up construction |
Maximum loan size | $5 million (single loan) | $5 million SBA-backed portion; total project often $15 million+ |
Average loan size (FY 2024) | about $456,000 | about $1.14 million |
Interest rate | Variable: prime plus a capped spread (about 10–12 percent today) | Fixed on the 40 percent CDC slice (roughly 6 percent); bank 50 percent sets its own rate |
Repayment term | Up to 10 years for working capital or equipment, 25 years for real estate | 10, 20, or 25 years to match the asset’s life |
Down payment | None for many expansions; 10 percent for startups or ownership changes | Always 10 percent; 15 percent if startup or special-use, 20 percent if both |
Collateral | Lender takes all available assets; loan can close with a shortfall | The financed asset secures both loans (first and second lien) |
Typical approval-to-funding time | 30–60 days (as quick as 36 hours for SBA Express) | 60–90 days because of the dual-lender structure |
Sweet spot | Broad needs and faster cash | Large, long-term fixed-asset projects |
Who does this well in the real world? Online marketplaces such as Lendio route a single SBA application—completed in about 15 minutes—to a vetted network of 75+ lenders, so borrowers see competing 7(a) and 504 quotes side by side before they spend on appraisals or legal fees.
See how the columns steer you? If your project involves buying a building and you can wait a couple of months, the fixed-rate stability of a 504 looks tempting. Need working capital next month to seize an inventory deal? The 7(a) program steps in.
Keep this table handy; we’ll refer back to it as we unpack each row in real-world terms.
Eligible uses of funds
What you can do with a 7(a)
The 7(a) loan is your business’s Swiss Army knife: it covers working capital, equipment, inventory, real-estate purchases, renovations, and even change-of-ownership deals—including the intangible goodwill that rarely shows up on a balance sheet. Use it to:
- Smooth seasonal payroll or inventory swings
- Buy an older competitor and inherit its customer list
- Finance furniture, vehicles, or leasehold improvements
- Bundle a building purchase with extra cash for operations
Because most lenders follow SBA rules, existing firms often need little or no down payment unless you are a start-up or buying another company, when 10 percent true equity is required.
Where the 504 shines and where it stops
A 504 loan acts like a focused laser: it finances long-lived, hard assets your company will occupy or use for decades. Typical projects include:
- Buying or constructing owner-occupied real estate
- Completing major renovations or expansions
- Acquiring heavy machinery with a long service life
Funds must flow straight into the land, building, or equipment listed in your project budget. They cannot pay for working capital, inventory, or goodwill. Meet the profile—steady growth plan, 60- to 90-day timeline, and at least 10 percent down—and you earn a predictable payment that stays put even if prime rate climbs. Miss any of those ingredients and the flexible 7(a) steps back into view.
Money matters: loan amounts, terms, rates & fees
Maximum dollars and typical project sizes
Both programs share the same cap, $5 million per SBA guarantee, yet they play out very differently in practice.
A typical 7(a) lands far below that ceiling; the average loan closed in fiscal 2025 at about $456,000, reflecting everyday growth moves such as stocking inventory or buying out a partner.
A 504 project often starts larger. Because a bank covers 50 percent and a Certified Development Company (CDC) funds 40 percent, total budgets routinely exceed $15 million, and the average SBA-backed portion now sits near $1.14 million.
Put simply, a manufacturer upgrading to a $3 million facility fits the 504 profile, while a restaurateur seeking $400,000 for a second site remains in 7(a) territory.
Interest-rate mechanics and today’s ranges
The 7(a) program ties most loans to prime plus a capped spread. With prime near 8.5 percent, a two- to three-point spread places many borrowers between 10 and 12 percent. Payments adjust whenever prime changes. Fixed-rate 7(a) options exist but usually price higher, so most stay variable.
A 504 splits the rate. The bank’s 50 percent slice may float or fix, depending on your negotiation. The CDC’s 40 percent slice is fixed, priced from a monthly bond sale linked to Treasury yields, and recently closed around 6 percent on a 20-year debenture. Blending both pieces often lands a weighted average a few points below current 7(a) quotes.
For owners who value predictable payments over decades, the 504 offers calm seas. Those who expect to refinance or sell sooner may still favor a variable 7(a).
Down payments and equity: how much skin you provide
7(a). Existing businesses that borrow for equipment or working capital usually contribute little more than closing costs. Two cases raise the bar: start-ups and ownership changes. In each, lenders verify at least 10 percent true equity, either buyer cash or qualified seller financing.
- The rule is fixed. Standard projects require 10 percent down. Firms under two years old provide 15 percent. Combine a new business with a special-purpose property such as a hotel or gas station and the stake rises to 20 percent. These percentages appear in the SBA playbook and industry guides.
Because the structure always layers bank and CDC funds, your cash slice is non-negotiable. Conventional real-estate loans often expect 25 to 30 percent, so meeting 10 to 15 percent can feel light. If only five percent is available, a 7(a) deal—possibly combined with seller notes or extra collateral—remains on the table.
Bottom line: set aside at least a tenth of your project cost in liquid funds before applying; lenders read that check as proof you stand behind the plan.
Collateral and personal guarantees: what backs the loan
Collateral is the lender’s safety net, and the two SBA programs weave that net in different ways.
With 7(a) financing the rule is direct but complex in practice: lenders collect all available collateral until the loan is fully secured, yet the SBA does not decline a deal solely because a borrower runs out of assets. Your business equipment, inventory, and accounts receivable go on the table first. If a gap remains on a larger request, the bank often records a second mortgage on the owner’s home. Strong cash flow can offset collateral limits, which is why asset-light service firms still qualify.
A 504 loan follows a stricter path. The project assets—building, land, or heavy machinery—become first and second liens for the bank and the CDC. In most cases their combined value covers the debt, so outside property stays clear. Only when an appraisal falls short does a lender request extra security.
Both loans share one rule: each owner with at least a 20 percent stake signs an unlimited personal guarantee. The SBA updated that threshold in 2025, closing a loophole that once allowed small-share partners to avoid liability. In practice, personal assets repay the debt after business assets are exhausted, a trade-off that helps keep SBA rates below many conventional offers.
Key points for borrowers:
- If hard collateral is light but cash flow is solid, a 7(a) loan stays possible, though expect a blanket lien and possibly a lien on your home.
- If the real estate or equipment you purchase fully secures the debt, a 504 loan can protect other property while locking a fixed rate.
Plan for the personal guarantee in either case; the SBA steps in only after you pledge your own backing.
Approval timeline and process
How a 7(a) loan moves from application to funding
Speed is a selling point, but fast still means paperwork.
Week 1–2 – Gather and submit. Provide a preferred SBA lender with your business plan, tax returns, interim financials, and personal financial statement. A complete, organized package trims underwriting days.
Week 2–3 – Lender underwriting. Analysts verify debt-service coverage, collateral, and equity. A bank with an SBA Preferred Lender Program license approves the guaranty in-house instead of waiting for the agency.
Day 15–16 – SBA number issued. After the lender submits in the E-Tran portal, the system assigns an SBA loan number and the commitment letter follows. For smaller requests, SBA Express loans up to $500,000 receive a guaranty decision in about 36 hours.
Week 4–6 – Closing. Title work, insurance assignments, landlord consents, and lien filings finish. Sign the note and funds wire within two days.
A prepared borrower often receives cash in 30 to 60 days; allow up to 90 days if appraisals or environmental reports slow the file.
The 504 route: two lenders, one monthly funding window
A 504 loan involves two approvals that must align.
Weeks 1–3 – Dual commitment. Secure a bank term sheet for 50 percent of the project while a Certified Development Company (CDC) reviews the same file for SBA eligibility.
Weeks 3–6 – SBA authorization. After the CDC votes yes, it uploads the package to the SBA. The agency usually signs off within a week once environmental reports and appraisals post.
Weeks 6–8 – Closing the bank loan. The bank funds its half first and records a first-position lien. You provide your 10 to 20 percent down payment at the same table, and construction or purchase begins.
Weeks 8–12 – Debenture sale and CDC funding. The CDC groups approved loans into a monthly bond issue. Miss that sale date and second-lien funds wait another four weeks. When the debenture closes, the CDC wires its 40 percent slice to reimburse costs or pay down the bank’s bridge note.
Expect 60 to 90 days from application to full funding, with the bond calendar acting as the main governor. If your expansion can wait, the reward is decades of fixed-rate stability.
Pros and cons at a glance
Use this quick checklist to match each program to your priorities.
SBA 7(a) advantages
- You need versatile funds for working capital, inventory, or acquisitions
- Time matters and a prepared file can close in about a month
- Collateral is light and cash flow carries more weight than hard assets
SBA 7(a) limits
- Variable rates rise whenever prime climbs
- Working-capital terms top out at ten years, raising monthly payments
- Larger loans often attach a lien on personal real estate
SBA 504 advantages
- You are buying or building real estate or heavy equipment with a long life
- A fixed payment helps plan cash flow for decades
- Ten percent down keeps more cash in the business compared with conventional loans
SBA 504 limits
- Two approvals and a monthly bond sale extend the timeline
- Funds cannot cover working capital, inventory, or goodwill
- The program requires at least ten percent equity, and more for start-ups or special-use properties
Real-world scenarios: which loan fits your playbook?
Jane buys the building
Jane’s manufacturing company has outgrown its leased space. She finds a $1.5 million warehouse and needs $200,000 in machinery. With ten percent cash in hand, she chooses a 504 package that finances the full project and locks the CDC slice for twenty-five years. Her blended monthly payment sits well below a comparable 7(a) quote, leaving working capital free for payroll and raw materials.
Joe buys the business
Joe is purchasing an established restaurant for $500,000, much of the price tied to goodwill. Because 504 funds cannot cover goodwill, he selects a 7(a) loan. Joe brings ten percent equity, rolls closing costs into the note, and secures a ten-year term. The rate is higher than a 504, yet the deal closes in six weeks and hands him immediate control.
Sarah races the calendar
Holiday demand will triple profit if Sarah orders inventory now. She needs $150,000 within a month. A 7(a) Express application returns an SBA decision in about thirty-six hours, and funds land three weeks later. A 504 would miss the sales window, and inventory is ineligible anyway.
Three owners, three goals, three loan answers.
Conclusion
Match your situation to the story that feels closest and the program choice usually becomes clear.
