SBA 7(a) vs 504

SBA Loans are guaranteed by The U.S. Small Business Administration (www.sba.gov). Small Business Administration (SBA) guaranteed loan programs help with a full range of small business needs for any industry. An SBA loan can be used to construct new or purchase existing commercial owner-occupied real estate, to expand or modernize facilities, purchase equipment, finance business acquisitions or start ups, and finance inventory and accounts receivables.

TYPE
SBA 7(a)
SBA 504
Benefits:
  • Lower down payment to conserve working capital
  • Longer term than conventional financing
  • Fully amortized loans
  • Lower down payment to conserve working capital
  • Longer term than conventional financing
  • Fully amortized loans
  • Up to 90% combined loan-to-value on real estate purchase
  • Higher size standards than the SBA 7A program allows
Uses:
  • Purchasing, constructing, or renovating commercial real estate (for owner-users 51% occupancy)
  • Purchasing of equipment
  • Working capital and inventory
  • Business acquisition and start-ups
  • Refinancing of existing business debt
  • Purchasing, constructing, or renovating commercial real estate (for owner-users 51 % occupancy)
  • Purchase of equipment with a useful life of 15 years or greater
Terms:
  • Real Estate Loans up to 25 years
  • Business Acquisitions up to 10 years
  • Machinery and equipment; up to 10 years
  • Working capital and inventory; up to 7 years
  • Bank loan up to 25 years
  • SBA/CDC loan is 25 years for real estate and 10 years for equipment
  • Real Estate Loans:
  • Up to 80% loan-to-value, subject to underwriting guidelines; up to 30 years fully amortized
  • Machinery and equipment; up to 15 years
Qualifications

Eligible for SBA Loans:

  • Operated for profit
  • Organized as a sole proprietorship, corporation or partnership (includes LLC and LLP)
  • Doing business in the U.S. or its possessions
  • Within SBA Loan size guidelines
Collateral and Loan Requirements

For many types of SBA loans, the assets being financed serve as the collateral for your loan. However, principal owners must have acceptable personal credit histories and may have to pledge available business or personally owned assets. SBA financing requirements can include:

  • Personal guarantees of owners with 20% or more ownership in the business. Personal guarantees from active owners with less than 20% ownership may be required
  • Accounts receivable and inventory, depending on collection history and marketability
  • Machinery and equipment
  • Real Estate and improvements

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