Comparison of Two Types of SBA Loan

Two major SBA loan programs consist of SBA 504 and 7(a). Both loans are designed for different use of proceeds. Compare them and apply for a better program for your business.

504 Loan Program

  • Designed for fixed assets (owner-occupied real estate, machinery, and FF&E) purchase and refinancing of existing debts

  • Fixed below market rate; 10, 20, or 25-year maturity

  • SBA guaranty fee: 0.5% on the guaranteed portion

  • Up to 90% financing

  • Prepayment penalty up to 10 years for a 25-year maturity and penalty up to 5 years for a 10-year maturity loan

7(a) Loan Program

  • Designed for working capital, inventory, and goodwill purchase

  • Variable or fixed rate adjusted by Wall Street Journal Prime Rate; up to 25-year maturity
     

  • SBA guaranty fee: 2-3.75% on the guaranteed portion
     

  • 75-80% financing typically; maximum up to 90%
     

  • Prepayment penalty for 3 years