Both are SBA programs with excellent terms. But 7(a) is flexible and 504 is purpose-specific. Here's exactly when to use each.
The SBA's two primary loan programs — the 7(a) and the 504 — are frequently confused because both offer excellent terms for small business owners. The critical distinction: the 7(a) is a flexible, multipurpose business loan; the 504 is specifically designed for fixed assets (commercial real estate and major equipment) with a unique two-lender structure.
The 504 loan has a unique two-lender structure: a conventional bank lends 50%, a Certified Development Company (CDC) lends 40% (the SBA-guaranteed portion), and the borrower contributes 10% down. This enables lower down payments for commercial real estate than conventional financing (10% vs 25–35%) with long fixed-rate terms on the CDC portion.
The SBA 504 cannot be used for working capital, inventory, or debt refinancing — only fixed assets. The 7(a) can be used for all of these, though at a different rate structure.
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