The U.S. Small Business Administration's two most popular programs, 7(a) and 504, both help small businesses borrow on better terms than a conventional loan. They are built for different jobs.
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At a glance
| SBA 7(a) | SBA 504 | |
|---|---|---|
| Best for | Buying a business, working capital, equipment, partner buyouts, some real estate | Buying or building owner-occupied commercial real estate and long-life equipment |
| Maximum | Up to $5 million | SBA/CDC portion up to $5 million ($5.5 million for qualifying manufacturing or energy projects); total project can be larger |
| Typical structure | One loan from an SBA lender | About 50% bank loan, 40% CDC/SBA loan, 10% borrower down payment |
| Rates | Usually variable, tied to prime | CDC portion fixed for the life of the loan |
| Goodwill | Yes, commonly used for acquisitions | No |
When 7(a) makes sense
If you are buying an existing business, the 7(a) is usually the tool. It can finance goodwill, inventory, equipment and working capital in a single loan, and can include real estate when the business occupies it.
When 504 makes sense
If you are buying the building your business operates in, the 504's low down payment and long fixed rate are hard to beat. Your business generally needs to occupy at least 51% of an existing building, or 60% of new construction.
Can you use both?
Yes. Buyers sometimes use a 504 for the building and a 7(a) for the business itself. Our commercial loan team can help you compare structures and connect you with SBA lenders and Certified Development Companies serving the Bay Area.
Our team at BRG Realty works with Bay Area business owners, buyers and investors. A first conversation is confidential and free.