Provided by the Small Business Administration, 7a and 504 loans have been used by countless businesses to fund their needs. But which one is right for your business?

To help you answer that question, this article goes over both types of SBA loan.

504 Loans

Per the SBA’s blog, 504 loans are a type of SBA loan designed to help small businesses “expand or modernize.” The funds from a 504 loan can be used for real estate, equipment, improvements (such as parking lots), and building or modernizing facilities. However, the funds cannot be used for “working capital or inventory,” servicing debt, or “speculation or investment in rental real estate.”

Notably, this type of loan requires no collateral and only a 10 percent down payment from the borrower. Funding ranges from $125,000 on the low end to $20 million on the high end, and the interest rate is fixed. For real estate purchases, the loan term is 20 years, and for equipment purchases, the term is 10 years.

7a Loans

While 504 loans are meant for business expansion, 7a loans have a somewhat different purpose. They can be used to cover startup costs, generate working capital, or purchase a business. They can also be used to refinance existing debt, according to the SBA. Regarding interest rates, these loans can come in fixed-rate and variable-rate varieties. 7a loans often require collateral.

The terms of 7a loans vary: They can be up to 25 years for real estate purchases, 10 years for buying a business or equipment, and 5 to 7 years for working capital. Loans meant for a variety of purposes will use a weighted average to determine the loan length.

Conclusion 

To sum up, if your business is looking to expand, a 504 SBA loan is probably the choice for you. If you are looking to buy a business, launch one, obtain working capital, or refinance debt, a 7a SBA loan may be the direction to go.

To learn more about the business world and funding options for your company, check out Mossberg Strategic Capital’s other blog posts.