SBA 7(a) vs 504: which one fits your project?
The two largest SBA loan programs work very differently. How to choose between them based on what you are financing.
Updated · 6 min read · By the AceTheSBA team
The 7(a) and 504 are SBA’s two largest loan programs, and both can finance large projects. The easiest way to choose between them is to start with one question: what will the money buy?
The short answer
- Buying, building or renovating a property your business occupies, or long-life equipment? Start with the 504.
- Working capital, inventory, buying a business, refinancing or a mix of uses? Start with the 7(a).
How the 7(a) works
A 7(a) loan is made by a bank or other lender, with SBA guaranteeing part of it: 85% for loans up to $150,000 and 75% above that. The guarantee is what makes lenders willing to say yes to businesses they might otherwise turn down.
- Maximum: $5 million
- Uses: almost any sound business purpose, including working capital, equipment, real estate, business purchases and refinancing
- Terms: generally up to 10 years, or up to 25 years for real estate
- Rates: negotiated with the lender, with SBA setting a maximum of the base rate (usually Prime) plus 3% to 6.5%, depending on loan size
- Collateral: not required for loans up to $50,000
The 7(a)’s strength is flexibility. One loan can cover a building, equipment and working capital together.
How the 504 works
A 504 project usually has three parts:
- A bank loan for a large share of the project
- A loan from a Certified Development Company (CDC), backed by SBA
- Your own cash injection, typically at least 10%, and more for new businesses or special-purpose buildings
The CDC portion carries a fixed rate for 10, 20 or 25 years, set at an increment above the 10-year U.S. Treasury rate. The CDC portion can be up to $5 million ($5.5 million per project for small manufacturers and energy projects), and fees of about 3% can be financed.
- Uses: buying, building or renovating owner-occupied property; machinery and equipment with at least 10 years of useful life; refinancing qualifying fixed-asset debt
- Not for: working capital, inventory, or rental and speculative real estate
The 504’s strength is long, fixed-rate financing on big fixed assets, often with a lower down payment than a conventional commercial mortgage.
Side by side
| 7(a) | 504 | |
|---|---|---|
| Best for | Flexible needs, working capital, buying a business | Owner-occupied property, major equipment |
| Maximum | $5 million | $5 million CDC portion ($5.5 million for small manufacturers and energy projects) |
| Rate | Usually variable, capped by SBA | Fixed on the CDC portion |
| Working capital | Yes | No |
| Who you deal with | One lender | A bank and a CDC |
When it is not obvious
Some projects could go either way, such as buying a building that also needs equipment and a little working capital. In that case, ask lenders to quote both. The difference in rate, fees and down payment over 20 years can be significant.
Whichever you choose, the preparation is largely the same: tax returns, financial statements, a debt schedule, a personal financial statement for each 20% owner, and projections showing the new payments fit.
The AceTheSBA Readiness Report matches your situation to the right program based on what you are buying and how much you need.
Figures checked against sba.gov in October 2026. Lenders set their own terms within SBA limits.