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SBA 504 vs 7(a) Loans

The Small Business Administration has two different programs. The 504, the program we specialize in, and the 7(a). The 7(a) is still the SBA’s most commonly used loan, and is usually the one people think they refer to when they generically refer to an “SBA Loan”.

The following is a detailed comparison of the two loan programs so you can decide which loan program is right for you:

SBA 504 Loan

SBA 7(a) Loan

What is primarily financed? Real estate and equipment over a long loan term. Working capital, inventory, equipment, stock, or any other business asset and/or debt to be refinanced.
Why is it typically used? Up to 90% loan-to-cost financing; 20-year fixed rate on second mortgage. Ability to enhance credit, offer longer terms than allowable conventionally, or mitigate a collateral shortfall.
Loan Structure First mortgage made by and serviced by a third-party lender or Mercantile in certain situations; second mortgage originated by Mercantile, subsequently sold in a debenture, and serviced by SBA. Single loan extended and serviced by a lender, which SBA guarantees.
Loan Size $500,000 to $20 million $250,000 to 5 million
Interest Rate  1st Mortgage: typical conventional pricing
2nd Mortgage: below-market  fixed interest rate
Typically floating at Prime+1% to Prime+2.5%
Term 1st Mortgage: 10 years minimum, with 20–25 year amortization.
2nd Mortgage: 20 years, fully amortizing
Up to 25 years, fully amortizing for real estate
Up to 10 years, fully amortizing for all other uses
Down Payment Minimum 10% of total project cost (real estate, construction/renovation, equipment, closing costs, soft costs) Typically 15%

Are you eligible for a 504 loan? Apply Today

How it Compares Cost & Structure