Small business owners have a lot of options to consider when it comes to small business loans. From selecting a lender to determining the type of loan you need, the path to financing can be a confusing one. Of the many places you may look, the United States Small Business Administration (SBA) can be a great resource for information on loans, and specifically, different SBA loan programs that are exclusively available to small businesses.
Of those SBA loan programs, the SBA 504 and the SBA 7(a) programs are two of the most popular. Each offers unique benefits to businesses that qualify.
Start your business credit journey
Build business credit, monitor credit health, and accelerate growth — all with Nav Prime.
SBA 7(a) Loan and SBA 504 Loan Overview
Both the 7(a) and 504 loans can help small business owners to grow or maintain their business, but each differs in the purposes for which it can be used.
To start, let’s look at the SBA 7(a) loan. The SBA 7(a) loan is the SBA’s most popular loan program. If you want to take out a loan so that you can have access to working capital, purchase furniture and fixtures, make leasehold improvements, or acquire an existing business, you should consider applying for a SBA 7(a) loan.
On the other hand, if you need to finance the purchase of land or existing buildings, make improvements to existing facilities, purchase equipment, or buy ground-up construction commercial real estate, you should consider the SBA 504 loan. The 504 program is an economic development program aimed at promoting growth and job creation, thus there may be a job creation requirement that is dependent on the amount of funds received.
Start your business credit journey
Build business credit, monitor credit health, and accelerate growth — all with Nav Prime.
Under the umbrella of the 7(a) loan program is the SBA Express Loan. The advantage of the Express Loan is turnaround time — completed applications will receive a response within 36 hours, a process which usually takes weeks to months (although actual loan funding takes longer). Express loans generally follow the same standards and uses as the 7(a) loan program.
If a business owner applies for an SBA loan, it’s worth noting that these loan types are not offered directly through the SBA. Instead, the SBA works with financial institutions like banks, credit unions, and other business lenders. These preferred SBA lenders then offer SBA loans that are guaranteed by the Small Business Administration — meaning if the borrower defaults, the SBA will cover the cost, mitigating the risk to lend for these preferred SBA lenders.
SBA 504 loans are made available through Certified Development Companies (CDCs).
SBA Loan Eligibility, Terms, Fees & More
Now that you know the main difference between the SBA 7(a) and SBA 504 loans, let’s break each of these SBA loan types down further. The chart below offers a more comprehensive look at the various characteristics of each of these SBA loans:
| SBA 7(a) | SBA 504 |
SBA Loan Amounts | SBA 7(a) loans have a maximum of $5 million. SBA Express loans have a maximum of $500,000. | SBA 504 loan amount has a maximum loan amount of $5 million; however there is no limit to the project size. |
SBA Loan Rates | Both fixed and variable rates are available. Rates are subject to SBA maximums and are negotiated by the lender and the applicant. | Rates are fixed and are typically a percentage above the US Treasury market rate for 5 and 10- year loans. |
SBA Loan Terms | Maturity terms for a 7(a) loan depend largely on the ability of the applicant to repay and the purpose of the loan. Below is a list of maximums based on purpose:
| Maturity terms for a 504 loan are available at 10 years and 20 years. |
SBA Loan Fees | Fees are based on the guaranteed dollar amount and the maturity of the loan. These fees can be rolled into the overall loan. | Fees will be based on 3% of the debenture. These fees can be rolled into the overall loan. |
SBA Loan Requirements & Eligibility | Businesses seeking a SBA 7a loan must meet the following requirements:
*For a full list of eligibly requirements please visit SBA.gov. | Businesses seeking a SBA 504 loan must meet the following requirements:
*For a full list of eligibly requirements please visit SBA.gov. |
Is an SBA Loan Right for Your Business?
SBA loans offer some of the lowest interest rates on business financing, however that doesn’t mean this is a perfect option for your company’s cash flow. You’ll have to meet the above requirements, and you also must have tried to use other financial resources, like personal assets, to qualify for an SBA loan.
A key component to qualifying for an SBA loan is your FICO SBSS score. You can manage your score with an add-on to Nav Prime and get on your way to qualifying.
If you’re a brand new company, consider seeking out other startup loan options and building your business credit before going through the lengthy application process associated with getting an SBA loan. Join Nav Prime to get started with business credit with up to two business tradelines to make your company more legit in the eyes of SBA lenders.
Get the credit your business deserves
Join 250,000+ small business owners who built business credit history with Nav Prime — without the big bank barriers.
Build your foundation with Nav Prime
Options for new businesses are often limited. The first years focus on building your profile and progressing.
Babs Nelsen
Babs is a former Senior Manager of Content Strategy at Nav, the leading financial health platform for small business owners. When she’s not diving into the best financing solutions and the latest news in small businesses, you’ll find her binge-watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos!