According to a 2019 Small Business Credit Report, only 48% of small businesses nationwide have their financing needs met. Are you one of the more than 50% of small businesses that still lack the funding necessary for growth or success?
If so, it’s important to know your options. By collaborating with banks and lenders, the Small Business Administration provides a variety of programs to help small businesses. The SBA 504 and the 7a loan are two of the most well-known of these loan programs.
It’s crucial to comprehend and contrast the distinctions between business loans, both overt and covert, in order to determine which is best for your company.
3 Key Differences between SBA 504 vs 7a loans
When comparing your loan options, keep in mind these three crucial distinctions between these two common loan types:
Purpose of the loan: Is your business an existing business or a new venture?
The status of your business and the goal of your loan are the first factors to compare when contrasting SBA 504 and 7a loans. The SBA 504 loan might be a better option if you have an established business and are looking to buy commercial real estate, land, or business equipment.
The 7a loan might be more appropriate if you are starting a new business or trying to buy an existing business. Companies that need to buy inventory or simply need some working capital can also use 7a loans.
Loan amount: How much money is your company looking to borrow?
SBA 504 loans are usually larger loans in terms of the amount borrowed. Depending on their requirements and needs, businesses can borrow anywhere between $125,000 and $10 million.
Conversely, 7a loans offer smaller loan amounts, with a $5 million maximum loan amount. Although a 7a loan technically has no minimum amount, these loans typically start around $30,000.
Terms: What are the interest rates, collateral and time invested in a loan?
Another aspect that distinguishes these two loans is the terms for SBA 504 loans compared to 7a loans. Included in the terms are interest rates, down payments, collateral, and loan terms.
Typically, SBA 504 loans have fixed interest rates that are fully amortized over the loan’s term. The typical loan term for real estate is 20 years, and for equipment loans, it is 10 years. Owners are required to provide a 10% down payment, as well as collateral in the form of financed project assets and personal guarantees.
In contrast, 7a loans typically have variable rates and may also contain loan guarantees. Guaranty amounts vary and are based on the loan amount. The lower the loan amount, the higher the guaranteed percentage. As for loan terms, they can range from 10 years for equipment loans to 25 years for real estate. While the Small Business Administration does require a 10% down payment for new businesses, some real estate transactions do not require one.
It’s important to keep in mind that the collateral for 7a loans differs in that a business owner might be required to offer every piece of available collateral to help secure the loan.
Get More Information on the Right Small Business Loan for You
You can secure the funding you need to realize your business goals by being aware of the variations between these common small business loan options.
Contact your neighborhood certified development company to find out more about SBA 504 and 7a loan options as well as what you should do to get ready for your loan appointment should you proceed to the next stage.
Ready to talk to the professionals at Certified Development Company (CDC) Growth Capital about your loan options? We can assist in providing answers to your inquiries and setting you up to build your business with the most advantageous SBA loan for your business’s growth requirements. Contact our loan experts today at (216) 592-2332 or online.
FAQ
What is the difference between an SBA 504 and 7a loan?
SBA 504 loans are usually larger loans in terms of the amount borrowed. Depending on their requirements and needs, businesses can borrow anywhere between $125,000 and $10 million. Conversely, 7a loans offer smaller loan amounts, with a $5 million maximum loan amount.
Can you have a 7a loan and a 504 loan?
An SBA 504 loan for real estate and an SBA 7(a) loan for working capital may be combined, but probably not at the same time. You must keep a high credit score and provide sufficient collateral for each loan in order to be approved for more than one SBA loan.
What does SBA 7a mean?
The 7(a) Loan Program, the SBA’s most popular loan program, offers financial assistance to small businesses with particular needs. When real estate is a component of a business purchase, this is the best option, but it can also be used for: Short- and long-term working capital Refinance current business debt.
Does the SBA Forgive 7a loans?
There has never been a better time to think about financing your business because the SBA will also waive the guaranty fee for any new SBA 7(a) loan closed during this same time frame. To qualify, the loan must be paid in full by September 30, 2021, so act quickly to take advantage of this fantastic opportunity.