How Do 7(a) and 504 Compare?
| Feature | SBA 7(a) | SBA 504 |
|---|---|---|
| Max loan amount | $5 million | $5.5 million CDC portion |
| Down payment | 10-20% | 10% (typically) |
| Interest rate | Variable (Prime + 2.25-2.75%) | Fixed on CDC portion |
| Term (real estate) | 25 years (business purchase: 10 years, real estate portion up to 25) | 20 or 25 years |
| Term (equipment) | 10 years | 10 years |
| Working capital | Yes | No |
| Debt refinancing | Yes | Limited |
| Acquisitions | Yes (business + RE) | Real estate only (separate loan, never blended) |
| Min. cash-flow coverage (SBA) | 1.25x to buy a business; 1.15x most other loans | 1.15x historical (was 1:1 before Oct. 2026) |
| Lenders | Banks, credit unions | Bank + CDC (two lenders) |
What Is the SBA 7(a) Loan Program?
SBA 7(a) is the SBA's flagship loan program and the most versatile:[1]
Best For
- Business acquisitions (including goodwill)
- Working capital needs
- Equipment purchases
- Debt refinancing
- Mixed-use projects (real estate + equipment + working capital)
- Startups (with strong borrower profile)
How It Works
A single lender (bank or credit union) provides the entire loan. The SBA guarantees 75-85% of the loan,[2] reducing lender risk. You work with one lender throughout the process.
7(a) Rates and Terms
- Rate: Variable, typically Prime + 2.25% to 2.75%
- Real estate: Up to 25-year amortization
- Equipment: Up to 10 years (or useful life)
- Working capital: 7-10 years
- Business purchase: Up to 10-year amortization; only the real estate portion can run longer, up to 25 years (SOP 50 10 8.1, Appendix 15)
- Upfront guaranty fee (FY2027): 2% to 3.75% of the guaranteed portion depending on loan size, and 0% on loans of $700,000 or less to manufacturers, listed food-supply-chain businesses, and rural businesses (SBA Information Notice 5000-881797)
What Is the SBA 504 Loan Program?
SBA 504 is designed specifically for real estate and major fixed asset purchases:[3]
Best For
- Owner-occupied commercial real estate
- Major equipment with 10+ year useful life
- Land and building improvements
- Projects where low fixed rate matters most
How It Works
SBA 504 is a three-party structure:
- Bank loan (50%): First position, conventional terms
- CDC loan (40%): Second position, SBA-backed, fixed rate
- Borrower equity (10%): Your down payment
You'll work with both a bank and a Certified Development Company (CDC). The CDC portion is the key benefit, it's a below-market fixed rate.
504 Rates and Terms
- CDC rate: Fixed, tied to Treasury bonds (currently ~6%)
- Bank rate: Negotiated, often variable
- Real estate: 20 or 25-year debentures
- Equipment: 10-year debentures
- Cash flow: At least 1.15x debt service coverage on the last fiscal year or 2-year average under SOP 50 10 8.1 (it was 1:1 before October 1, 2026)
- Fees (FY2027): 0.50% upfront guaranty fee and 0.203% annual service fee, both waived for manufacturers, listed food-supply-chain businesses, and rural businesses (SBA Information Notice 5000-881796)
When Should You Choose SBA 7(a)?
SBA 7(a) is the better choice when:
- You need working capital: 504 can't provide it
- You're buying a business: 7(a) finances goodwill; 504 doesn't
- Speed matters: 7(a) has one lender, simpler process
- Flexibility is key: One loan for multiple purposes
- Refinancing debt: 7(a) has broader refinancing options
- Smaller projects: 504 has higher minimums ($125K CDC)
When Should You Choose SBA 504?
SBA 504 is the better choice when:
- Real estate is the main purpose: 504 is built for it
- You want a fixed rate: Lock in the CDC portion
- Cash flow matters: Lower blended rate = lower payments
- Minimizing down payment: 10% standard vs 10-15% for 7(a)
- Large project: 504 can go higher for real estate
What Does a Blended Rate Look Like?
For a $2 million commercial property purchase:
SBA 7(a) Option
- Loan: $1,700,000 (85%)
- Equity: $300,000 (15%)
- Rate: Prime + 2.75% (currently ~10.25%)
- Monthly payment: ~$15,500
SBA 504 Option
- Bank loan: $1,000,000 (50%) at 8%
- CDC loan: $800,000 (40%) at 6%
- Equity: $200,000 (10%)
- Blended rate: ~7.1%
- Monthly payment: ~$13,800
In this example, 504 saves ~$1,700/month and requires $100,000 less equity.
Which Program Works Best for Your Industry?
Startups
Both programs work for startups, but 7(a) is more common. 504 startups must meet job creation requirements (1 job per $90,000 of CDC debenture).
Hotels
Hotels often benefit from 504 for the real estate component. The fixed rate helps manage cash flow through seasonal fluctuations.
Franchises
Most franchises use 7(a) because they need working capital and equipment financing along with any real estate.
Restaurant Acquisitions
7(a) is typically better because you're buying the business (including goodwill), not just real estate.
Can You Combine 7(a) and 504?
Yes, as separate loans, not one blended loan.[4] Under SOP 50 10 8.1, an outstanding 7(a) balance no longer reduces what you can borrow under 504, so a common structure is:
- 504 for the real estate purchase
- Separate 7(a) for goodwill, equipment, and working capital
This requires careful structuring with lenders who understand both programs.
SBA Loan Requirements by Industry
| Requirement | Restaurant | Hotel | Franchise | Dental |
|---|---|---|---|---|
| Min. Down Payment | 15-20% | 10-15% | 10% | 10% |
| Min. Credit Score | 680+ | 680+ | 680+ | 680+ |
| Min. DSCR (SBA floor) | 1.25x to buy; 1.15x start-up | 1.25x to buy (504: 1.15x) | 1.25x resale; 1.15x new unit | 1.25x to buy |
| Experience Required | 2-3 yrs food service | 2-3 yrs hotel mgmt | Flexible (franchisor trains) | Clinical experience |
| Best SBA Program | 7(a) | 504 + 7(a) | 7(a) | 7(a) or 504 + 7(a) |
| Typical Loan Range | $350K-$2M | $1M-$5M | $200K-$2M | $400K-$2M |
| Timeline to Close | 60-90 days | 60-120 days | 60-90 days | 60-90 days |
Source: SBA SOP 50 10 8.1 (effective October 1, 2026), current lender requirements. DSCR row shows SBA floors; lenders may require more. Figures are typical ranges, not guarantees. Individual lender requirements vary.