The Difference between 7a and 504 Loans for Small Business

The most difficult paths are often the most rewarding, and nowhere are this truer than in the world of small business owners. Challenges abound while solutions are few and far between—and funding is always a question, never a guarantee.

Small Business Loans

Did you know that the Small Business Administration (SBA) exists to help small business owners start, grow, and maintain their livelihood? So many pieces make up the puzzle that is your small business story, and you are the only one who can assemble them into one beautiful and cohesive image.

It’s up to you to decide whether or not to apply for a small business loan, and then it’s up to you to determine which one is right for your business. Not to worry, we've done the research for you. Take a look at our comparison of the most popular and efficient small business loans: the 7(a) and the 504.

SBA 7(a) Loan

The SBA 7(a) loan for small business is very popular amongst budding entrepreneurs who need funding to use as working capital, purchase furniture, fixtures, plumbing, electrical, interior, and exterior updates.

These types of loans can also be used to purchase an existing business, and enable you to borrow up to $2 million, with 25 year terms for real estate and equipment and 7 year terms for working capital. Interest rates will vary depending on your unique circumstances.

SBA 504 Loan

The SBA 504 loan for small business is perhaps less known than the 7(a) loan, but every bit as useful. Specifically allocated for the purchase of land or buildings, equipment or machinery, and renovations or construction materials.

The major advantage of such a loan is that you, the business owner, are only responsible for 10% of the total project cost! The remaining 90% is covered by two parties:

• Commercial Lender: 50%
• Certified Development Company (CDC agency): 40%

The advantage of such a loan is that you’ll have the kind of backing to secure a loan, even though you’re just starting out and may not have the kind of cash flow that puts a lender’s mind at ease. With the support of the SBA and your CDC, you’ll be less of a "risk" and more of an "investment in the local economy."

What is a Certified Development Company?

These agencies operate under the watchful guidance of the Small Business Administration, but are a separate entity. Working as the go-between for the small business owner and the commercial lenders (usually banks), CDCs provide a valuable service to the community.

Building and maintaining relationships with lenders enables CDCs to bridge the gaps and provide a level of security for the banks. The 504 program was created by the SBA to promote economic growth and create jobs for the good of the community, so it is in everyone’s best interest to invest. Keep in mind that some additional requirements may come with a 504 loan, such as stipulations regarding job creation opportunities.

SBA & CDC Loans for small business

When seeking a small business loan, you have no shortage of options! That’s why it’s important to carefully review the guidelines, requirements, and terms of any loans you’re considering. Happy Borrowing!

Whether you need Sba 7 (a) or 504 loan for your small business in Virginia, Maryland and North Carolina. The 504 Capital Corporation provides financing at market rate, with a minimum down payment. Our loans have a term of 25, 20 and 10 years.