SBA 7(a) vs 504: Which is Right for You?

Trying to decide what type of loan is best for your business can be confusing. With all the rules, guidelines and regulations, it’s easy to get overwhelmed. But with the right information, you can confidently choose the best loan program for your specific business needs.

At First Bank of the Lake, we are proud to offer government-guaranteed Small Business Administration (SBA) 7(a) and 504 loans. Use the chart below to discover the key differences between these two SBA loans and learn when you should consider each program.

SBA 7(a) Loans

SBA 504 Loans

Loan Amount

Up to $5 million

Up to $5 million on the Bank financed portion.
However, if a building is working towards “Green Certification,” loans can be larger.

Common Uses of Loan

  •  Business & real estate acquisition

  •  New construction and renovations

  •  Initial working capital, inventory soft cost and closing costs

  •  Buy new equipment

  •  Partner buy-out

  •  Refinance existing business debt

  •  Acquisition of an existing building

  •  Building expansion or renovations

  •  Equipment

  •  Fixed assets from business acquisition

  •  Land and new construction

Terms of Loan

  •  Real estate: up to 25 years

  •  Non-real estate debt: up to 10 years

  •  Term can be blended if the debt includes both real estate and non-real estate debt

  •  Real estate: 25 years

  •  Equipment: up to 20 years
    (assuming capital equipment is new or supported by an appraiser confirming the useful life of the assets)

  •  Mixed-use loans can have blended terms, but typically the longest term is used based on the largest use of proceeds as a percentage of the loan.

Interest Rate

Variable and fixed rate options available

Variable and fixed rate options available

Loan Fees

  •  The SBA Guarantee fee ranges from 2% to 3.5% of the guaranteed portion of the loan

  •  Other fees include packaging fees, third party reports, lien filings, title charges, etc. (closing fees can be incorporated into the loan)

  • 2%-4% of total financing

  •  Other fees include packaging fees, third party reports, lien filings, title charges, etc. (closing fees can be incorporated into the loan)

When should you consider the SBA 7(a) loan?

The 7(a) loan is the SBA’s most popular loan program for small business owners and many who would not otherwise qualify for a conventional small business loan find that they qualify for the SBA 7(a) program. While many people mistakenly think that this loan is only for those starting a new business, the SBA 7(a) loan is also an excellent financing tool for those who want to expand an established business, buy an existing business, purchase a building, or finance a construction project.

When should you consider the SBA 504 loan?

Unlike the 7(a) loans, the SBA 504 loan program is more specific in terms of what you can use the funding for. Created by the SBA to support and encourage small business growth, the funds from this loan must be allocated toward fixed assets such as commercial real estate and equipment. These loans have low down payments and interest rates.

If you’re purchasing an existing building, expanding or building a new construction, the SBA 504 loan allows business owners to finance construction costs, closing costs and soft costs, including architectural fees, engineering, fees, surveys, title insurance and more within the loan. Machinery, equipment, furniture, fixtures, signage, landscaping and parking lots and equipment can also be included. This allows borrowers to retain more of their working capital for other expenses.


If you’re unsure which program would be best for your business, remember that you do not need to go through this process alone. Contact an experienced SBA Preferred Lender like First Bank of the Lake to discuss your options.

As a nationwide SBA Preferred Lender, First Bank of the Lake has the resources and extensive experience needed to tailor solutions for your business and guide you down the path to success. Lending decisions are driven by our team of banking professionals who understand your business. We employ our creativity, understanding, experience and expertise to build the right solution for you.

Schedule a Free SBA Loan Consultation Consultation