Choosing the right SBA loan is critical for small business owners looking to expand or invest in their companies. The two most common options—SBA 504 loans and SBA 7(a) loans—each offer unique benefits depending on your business needs.
At Statewide CDC, a preferred lender on behalf of the Small Business Administration (SBA), we specialize in SBA 504 loans, providing long-term, fixed-rate financing for commercial real estate and major equipment purchases. In this guide, we’ll break down the key differences between these two loan types and help you determine which one is the best fit for your business.
What Is an SBA 504 Loan?
An SBA 504 loan is a government-backed loan program designed to help small businesses purchase commercial real estate, land, and equipment at below-market interest rates. These loans are ideal for businesses making long-term investments in fixed assets.
Key Benefits of SBA 504 Loans
- Low down payment (typically 10%), preserving working capital
- Fixed interest rates, providing financial stability
- Long repayment terms (10, 20, or 25 years) for manageable payments
- Restricted to fixed asset purchases, such as real estate and heavy machinery
SBA 504 Loan Structure
These loans are structured with three components:
- 50% lender financing (from a bank or credit union)
- 40% SBA-backed funding through Statewide CDC
- 10% borrower contribution
This unique structure enables businesses to acquire property with minimal upfront costs while securing low, fixed interest rates for long-term stability.
What Is an SBA 7(a) Loan?
An SBA 7(a) loan is a flexible financing option that can be used for a wide range of business needs, making it one of the most popular SBA loan programs. It is best suited for businesses looking for working capital, refinancing options, business acquisitions, or real estate purchases.
Key Benefits of SBA 7(a) Loans
- Loan amounts up to $5 million
- Can be used for various business expenses, including inventory, payroll, and renovations
- Variable or fixed interest rates, depending on lender terms
- Repayment terms of up to 25 years
Unlike SBA 504 loans, which are limited to fixed asset purchases, SBA 7(a) loans provide greater flexibility, making them ideal for businesses needing short-term capital solutions.
Which SBA Loan Is Right for You?
Depending on your business’s specific financial needs, you may choose between an SBA 504 loan and an SBA 7(a) loan.
If you are purchasing or renovating commercial real estate or acquiring heavy machinery, an SBA 504 loan from Statewide CDC is the best option.
On the other hand, if you need funds for working capital, refinancing existing business debt, or expanding your business, an SBA 7(a) loan is the better fit.
Get Expert Guidance with Statewide CDC
At Statewide CDC, we help business owners navigate the SBA loan process with personalized guidance and expert support. Whether you need assistance determining the right loan for your business or navigating the application process, we’re here to help. Contact Statewide CDC today to get started!
