Guide · Borrowing

SBA 7(a) vs SBA 504 loans: which one fits what you're buying?

Both are SBA-backed loans with long terms. The difference is what they can pay for. Here's how each one works, what you'd put down, and a worked example to help you pick the right one before you call a lender.

Checked November 11, 2026

The short answer

Buying or building property, or big long-life equipment? Look at the 504. It's built for fixed assets, with a fixed rate on part of the loan and a standard 10% down.
Buying a business, or need working capital, inventory or a mix of things? Look at the 7(a). A broker's guide sums it up: choose the 7(a) for working capital, inventory, buying a business, or a mix of uses in one loan.

Many owners use both over time: a 504 for the building, and a 7(a) or a line of credit for everything else.

How a 7(a) loan works

The 7(a) is SBA's main loan. A bank or other SBA lender makes the loan, and SBA guarantees part of it. SBA's lender page says most 7(a) loans have a maximum loan amount of $5 million, and SBA Express loans top out at $500,000.

It's the flexible one. It can pay for working capital, inventory, equipment, real estate or buying a business, all in a single loan. The longest terms SBA allows are set by what the money is for, per that same page: 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory. Rates can be variable or fixed, and SBA caps how far above the base rate a lender can go.

What you put down on a 7(a)

Buying a business: for loans approved from October 1, 2026, a first-time buyer must inject 10% of total project costs, and it can't be reduced. Seller debt and similar sources may not exceed half of the required equity injection.
Starting a business: start-ups must put in at least 10 percent of the total project cost.
Everything else: the lender sets the down payment based on your cash, collateral and earnings.

How a 504 loan works

A 504 is really two loans plus your money. A bank makes a first loan, and a nonprofit Certified Development Company (CDC) makes a second loan backed by SBA. The usual split, as one CDC describes it: bank portion about 50%, CDC/SBA debenture up to 40%, borrower equity 10% standard.

What it pays for: buying land or buildings, building or improving them, and long-life equipment. Not day-to-day costs: working capital and inventory are not eligible, and the CDC's guide adds that it will not cover working capital, inventory, goodwill. Goodwill is most of the price of many businesses, which is why buyers usually use a 7(a).
How big: the SBA-backed part goes up to $5 million for most projects and $5.5 million for manufacturers, plus some energy projects. The bank's part sits on top, so the whole project can be larger.
Terms: the CDC part runs 10, 20, or 25 years, with 10 years usually for equipment and 20 or 25 for real estate.
Rate: the CDC part is fixed for its life, set at an increment above the current market rate for 10-year U.S. Treasury bonds when the monthly bond sale prices. The bank sets its own rate and terms on its 50%.
Fees: upfront fees on the CDC part generally total around 3% and can usually be rolled into the loan.
You must use the building: CDC and broker guides say you need to occupy at least 51% of an existing building, and more for new construction. A 504 is not for rental property you lease out.
Jobs: the project should create or keep one job for every $95,000 of SBA-backed money ($150,000 for small manufacturers and energy projects), or meet a public-policy goal instead.

When a 504 needs more than 10% down

A business with less than two years of operating history puts down 15%. So does a special-purpose building, such as a hotel or gas station. If both apply, the CDC's guide says it rises to 20% if both conditions apply.

Side by side

7(a) 504 Best for Buying a business, Buildings, land, working capital, construction, big mixed needs equipment Working capital Yes No Inventory Yes No Goodwill Yes No SBA-backed amount Up to $5M loan Up to $5M ($5.5M manufacturers) Longest term 25 yrs real estate 20 or 25 yrs real 10 yrs equipment estate, 10 yrs equipment Rate Variable or fixed Fixed on CDC part Typical down Lender sets it; 10%; 15% to 20% for 10% to buy or start start-ups or special a business buildings Lenders involved One Bank plus a CDC

A worked example

The business and figures are made up. A plumbing company has been renting for eight years and wants to buy a $1,500,000 building and use all of it. Swap in your own numbers.

Option 1: a 504

Project cost $1,500,000 Bank first loan 50% $750,000 CDC / SBA loan 40% $600,000 Owner's cash 10% $150,000 Total $1,500,000 Upfront fees on CDC part, about 3% $600,000 × 3% = $18,000 (usually financed) Jobs check: $600,000 ÷ $95,000 = about 6.3

The owner puts $150,000 down, and $600,000 of the debt carries a fixed rate for 20 or 25 years. The company would need to show it creates or keeps jobs in line with that ratio, or meets a public-policy goal. Ask the CDC how it counts.

Option 2: the same building as a start-up

If the company were under two years old, the owner's share rises to 15%:

Owner's cash 15% $225,000 Bank first loan 50% $750,000 CDC / SBA loan 35% $525,000 Total $1,500,000

That's $75,000 more cash at closing.

Option 3: building plus working capital

Now say the owner also wants $250,000 of working capital and $150,000 of inventory for a new service line. A 504 can't pay for either. The choice is:

a 504 for the building and a separate line of credit for the rest, or
one 7(a) for all $1,900,000, which sits under the $5 million cap.

The 504 route usually means a smaller down payment on the building and a fixed rate on part of it. The 7(a) route means one lender, one closing and one payment. Ask lenders to quote both, and compare the total monthly payment, the down payment and the fees.

Before you apply, check that the payment fits. The loan payment calculator works out the monthly payment for a rate and term, and the how much can I borrow calculator shows what your earnings can support. Our DSCR guide explains the coverage lenders test.

Questions to ask before you choose

What am I actually buying? If it's mostly a building or long-life equipment, start with a 504. If it includes goodwill, inventory or working capital, start with a 7(a).
How much cash can I put down? A 504 is usually 10%. Keep enough back for the slow months; the 13-week cash flow template shows whether the down payment leaves you short.
Do I want a fixed rate? The 504's CDC portion is fixed. A 7(a) can be variable or fixed. If it's variable, a rate rise raises your payment.
Will I sell or refinance early? Both loans can carry prepayment penalties in the early years. Ask for the schedule in writing.
Will I use the building? A 504 requires you to occupy most of it.

This guide is general information, not financial or legal advice. SBA rules change, and lenders and CDCs can ask for more than SBA's minimums, so confirm the details with your lender.

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Sources

All checked November 11, 2026. SBA's 504 and 7(a) program pages and the federal regulations could not be opened for this check, so most 504 rules are cited from CDC, broker and legal-information summaries. Confirm them with your lender or CDC.