It’s common for small businesses to need financing at some point in their business lifecycle. The most recent data from the Small Business Credit Survey showed that 37% of small businesses applied for a loan, line of credit, or merchant cash advance in 2023. And while many business owners turn to banks for funding support, the U.S. Small Business Administration (SBA) is also a popular choice.
The SBA provided $37.8 billion in funding in fiscal year 2024, channeling its loans through two key programs: 7(a) and 504 loans. More specifically, the administration doled out $31.1 billion in 7(a) and $6.7 billion in 504 loans. These programs are great options for small businesses that qualify, but they serve very different funding needs. This guide compares the SBA 7(a) loans and 504 loans so you can determine which option is right for your business.
Background: What are the SBA 7(a) and 504 loans?
The SBA 7(a) loan program is the primary government loan program that helps small businesses access funding. Loans are issued by private lenders and are partially backed by the SBA. This dynamic reduces risk to lenders, enabling them to provide financing to some businesses that might not qualify under ordinary circumstances. 7(a) loans are the most common type of SBA loan, with over $37 billion guaranteed in 7(a) loans during fiscal year 2025.
The SBA also backs 504 loans. However, these loans are issued by third-party lenders (banks or credit unions) or Certified Development Companies (CDCs). These are SBA-certified organizations that support economic development in their communities. Financing works slightly differently, too. Loans are typically split with 50% from a conventional lender, 40% from the CDC/SBA 504 portion, and a 10% borrower contribution.
Permitted uses for each type of loan
7(a) loans can be used for a wide variety of purposes: real estate acquisitions, short- and long-term working capital, refinancing debt, buying equipment or office furniture, and more. There are different types of 7(a) loans tailored to various needs, including standard loans, small loans, express loans, export-related loans, and working capital loans. “The best one for your business will depend on the amount of funding you need, how you intend to use the funding and how quickly you need it,” wrote Nerdwallet.
7(a) loans are best for business activities such as:
- Building, buying, or renovating a commercial property.
- Buying fixed assets (furniture, equipment, etc.).
- Working capital: purchasing inventory or supplies.
- Purchasing land for a business.
Comparatively, the focus of 504 loans is to promote business growth and job creation by funding purchases or upgrades of major fixed assets. SBA 504 loans are designed for long-term investments that improve a business’s infrastructure.
“SBA 504 loans can be used to buy land, real estate, equipment, machinery, furniture, or fixtures. They can also be used to build or upgrade facilities, including utilities, streets, or parking lots. In specific scenarios, you can use a 504 loan to refinance debt or change ownership in your business,” wrote Nerdwallet. “You cannot, however, use an SBA 504 loan for working capital, to purchase inventory, or to invest in real estate.”
The SBA provided $37.8 billion in funding in fiscal year 2024, channeling its loans through two key programs: 7(a) and 504 loans. More specifically, the administration doled out $31.1 billion in 7(a) and $6.7 billion in 504 loans.
What are the different loan amounts, terms, and fees?
Loan amounts in the 7(a) program vary, but the maximum value is up to $5 million. The smallest loan, the 7(a) express loan, is $25,000. The terms are typically up to 10 years for working capital and equipment, and up to 25 years for real estate.
The upfront fee for the 7(a) loans varies between 0.25% and 3.5% of the loan portion that the SBA guarantees. Bigger loans usually have a smaller percentage fee, and smaller loans have a higher percentage fee. Interest rates, too, depend on the size of the loan. Because 7(a) loans are backed by the SBA, you benefit from competitive fixed and variable interest rates.
Because the funding goes to high-value investments, 504 loan amounts tend to be much higher than 7(a) loans. In most cases, the maximum value for 504 loans is also $5 million (though certain manufacturing projects qualify for $5.5 million). “As of August 2025, the average loan size was over $1.14 million for the SBA 504 loan versus the 7(a) average of $456,417,” reported Bankrate.
The SBA’s 504 loans come with a fixed interest rate pegged to an increment above the current market rate for 10-year U.S. Treasury issues. The total is roughly 3% of the debt. Fees tend to be higher compared to the 7(a) loans, including the upfront guarantee fee, the annual service fee, and CDC processing and servicing fees.
Who is eligible for SBA 7(a) loans vs 504 loans?
SBA 7(a) loans and 504 loans both have specific eligibility requirements, though they overlap in some areas.
Let’s start with the similarities. To qualify for either the 7(a) or the 504 loan, your business must be small, for profit, and located in the United States. Your business must have enough creditworthiness to assure loan repayment. And you must have exhausted other financing options. “The requested loan is unavailable on reasonable terms from non-government sources,” explains the SBA.
The SBA 7(a) loan program also requires that you:
- Demonstrate the business purpose for which you’ll use the funds.
- Not be behind in payment on any existing government loans.
- Provide collateral for loans larger than $50,000.
- Provide a personal guarantee if you own 20% or more of the business.
The 504 loans are slightly more complicated. In addition to meeting all the criteria of the 7(a) loans, applicants must have a tangible net worth of less than $20 million and an average net worth of less than $6.5 million after federal income taxes for the two years before they apply. It’s worth noting that the CDCs assess 504 loan applications; they have specific criteria that you’ll need to meet as well.
What are the application steps and timelines for each loan?
SBA 7(a) loan applications go through a bank or credit union. Once you submit your application, the lender works with the SBA to receive a loan guarantee. To start, you’ll need to find an SBA 7(a) lender. The SBA has a lender match tool where you can find and connect with a financial institution in your area.
“In general, you’ll want to look for SBA lenders that have experience issuing 7(a) loans, as these institutions will be able to expedite the application process, answer questions you may have and possibly increase your chances for approval,” wrote Nerdwallet.
Your lender will help you prepare the application and put together the documents you need. In general, you’ll be required to submit business financial statements, income tax returns, any business licenses you have, personal financial information (SBA Forms 912 and 413), and the SBA Form 1919, the Borrower Information Form. Consult with your SBA lender to get the complete list of what you need to submit.
Timelines for SBA 7(a) loans vary depending on the type; for instance, SBA Express may approve loans without the SBA reviewing the application. In general, however, expect the application and funding process to take between 60 and 90 days.
The 504 loan application process is similar. You’ll start by finding a CDC, a Certified Development Company, many of which are listed on the SBA’s website. The CDC will confirm that you’re eligible for the 504 loan and help you find a third-party lender.
Once you’ve found your partners, you’ll need to gather information about the project you’re hoping to fund. “You may need to get quotes from a vendor or calculate overall project costs,” wrote Nerdwallet. “This will help determine how much financing you qualify for and how much of a down payment you need, as well as confirm that you meet all 504 loan requirements.”
The 504 loan application is detailed. In addition to the financial information required by the 7(a) loan, you’ll submit:
- A business plan.
- Accounts payable and receivable.
- Contractor estimates for construction loans or cost documentation for equipment loans.
- An existing debt schedule.
- A cash flow analysis.
- A description of the owner’s or manager’s experience.
- A description of additional collateral.
- A real estate and/or equipment appraisal.
- SBA Form 1244 (This is the application for a Section 504 loan).
Because funding amounts tend to be higher, 504 loan applications take longer to process. There is no express version, so budget one to two months for the application and funding process (longer for more complex purchases).
How do you know which loan is right for you?
If you’re not sure which loan is right for you, start with a cost analysis. How much money do you need, and what type of project are you hoping to undertake?
If your project requires the purchase of real estate, equipment, or land, you will likely need a 504 loan. Any other project for which you need capital requires a 7(a) loan. Check with a financial adviser if you’re not sure which loan you qualify for.
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