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SBA 504 and 7(a) Loans. Which One is Right for Your Business?


SBA 504 or 7(a) Which is right for you?


Small businesses in Utah often look to the Small Business Administration (SBA) for help in obtaining financing to grow their businesses. The SBA offers two primary loan programs to small business owners: the SBA 7(a) loan and the SBA 504 loan. Both loans offer advantages and disadvantages, and choosing the right loan depends on the specific needs of the business.


SBA 7(a) Loan


The SBA 7(a) loan is the SBA's most popular loan program. It can be used for a variety of business purposes, including working capital, equipment purchases, inventory, and real estate. The maximum loan amount is $5 million, and the loan can be repaid over a period of up to 25 years.


Pros of SBA 7(a) Loan:

  1. Flexibility: The SBA 7(a) loan offers a lot of flexibility, allowing businesses to use the funds for a variety of purposes.

  2. Lower down payment requirements: Borrowers can qualify for an SBA 7(a) loan with a lower down payment of 10% or less, which can help businesses conserve their cash flow.

  3. Quick approval: The SBA has streamlined the application process for 7(a) loans, making it easier and faster for businesses to get the financing they need.

Cons of SBA 7(a) Loan:

  1. Interest rates: Interest rates on 7(a) loans tend to be higher than other types of loans due to the added risk the lender assumes.

  2. Collateral: Collateral may be required for larger loans, which could put business assets at risk.


SBA 504 Loan


The SBA 504 loan program is designed specifically for businesses looking to purchase or renovate owner-occupied commercial real estate or purchase large equipment. The loan amount can be up to $5.5 million, and the repayment term can be up to 20 years.


Pros of SBA 504 Loan:

  1. Lower interest rates: Interest rates on 504 loans tend to be lower than other types of loans because they are partially guaranteed by the SBA.

  2. Longer repayment terms: Repayment terms for 504 loans can be up to 20 years, providing businesses with more time to repay the loan.

  3. No collateral requirements: The collateral for 504 loans is the assets being financed, which means businesses don't need to put up additional collateral.

Cons of SBA 504 Loan:

  1. Limited use: 504 loans can only be used for real estate or large equipment purchases, which may not be useful for all businesses.

  2. Longer application process: The application process for 504 loans can be longer and more complicated than for other types of loans.

  3. Higher down payment requirements: Borrowers must contribute at least 10% of the total project cost as a down payment, which can be a challenge for some businesses.


Choosing between an SBA 7(a) loan and an SBA 504 loan can be difficult, but understanding the pros and cons of each can help business owners make the right decision. Ultimately, the best loan program depends on the specific needs of the business. If the business needs funding for a variety of purposes, the SBA 7(a) loan may be the best choice. If the business is looking to purchase or renovate real estate or purchase large equipment, the SBA 504 loan may be the better option.


Call Wasatch Business Finance for more information on both programs and how to choose which is right for you.


385-799-6700 or visit www.wasatchcdc.com for more information.

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