The short answer
Use a 7(a) loan for working capital, inventory, a business purchase or a mix of uses. Use a 504 project for a building or long-lived equipment: a bank usually lends about half, and an SBA debenture of up to 40 percent adds a long, fixed-rate share. A 504 asks at least 10 percent from you. A 7(a) sets a fixed cash minimum mainly for start-ups and business purchases. If you need both, the 7(a) is processed first.
Which one fits, in one table
7(a) and 504 compared, under SOP 50 10 8.1 and the fiscal year 2027 fee notices
| 7(a) | 504 | |
|---|---|---|
| What it pays for | Working capital, inventory, equipment, real estate, a business purchase, leasehold improvements, refinancing | Land, buildings, equipment with a useful life of 10 years or more, site work, project soft costs, qualifying refinancing |
| Largest loan | $5,000,000, with SBA’s share capped at $3,750,000 for a borrower and affiliates | Gross debenture of $5,000,000 per borrower and affiliates, or $5,500,000 per project for small manufacturers and energy projects, plus the bank’s loan |
| SBA role | Guaranty of 85% up to $150,000, 75% above it; SBA Express 50% | Guarantees the debenture in full; the bank loan has no SBA guaranty |
| Longest term | 10 years for working capital, 10 (15 if the IRS asset class supports it) for equipment, 25 for real estate | Debenture of 10, 20 or 25 years; bank loan at least 7 or 10 years |
| Rate | Fixed or variable, negotiated under an SBA cap | Debenture rate set once, at the sale; bank rate negotiated |
| Your cash | A 10% minimum for a start-up or a business purchase, with limited exceptions; otherwise the lender judges | At least 10%; 15% for a new business or special purpose property; 20% for both |
| Who is involved | One SBA lender | A bank and a certified development company |
What each one can finance
A 7(a) loan is the flexible tool. It can fund working capital, inventory and software, equipment, a building, leasehold work, a business purchase and, within limits, refinancing. It cannot fund a revolving line unless it is SBA Express, CAPLines or another named program, and it cannot fund property held for resale or lease to others, other than through an eligible passive company that leases to the operating business.
A 504 project funds fixed assets only. Receivables, goodwill and general working capital are not on its list, and the one refinancing option that can include operating expenses is refinancing without expansion. A 504 project must also meet an economic development objective, usually one job created or retained for each $95,000 of SBA debenture.
If most of what you need is not a fixed asset, the choice is made for you.
Size, term and rate
A 7(a) loan stops at $5,000,000. A 504 project can be larger, because the bank’s loan sits alongside the debenture. When the request is mostly a business purchase, the 7(a) is the one that can finance goodwill.
On term, a 7(a) loan for real estate can run 25 years, fully amortized, and SBA does not allow a balloon. A 504 project splits the term. The debenture can run 25 years at a rate set at the sale. The bank’s loan only has to run 7 or 10 years, and SBA allows a balloon on it if the loan report justifies it, so ask the bank how it plans to be repaid at the end.
On rate, a 7(a) loan is capped by loan size. The cap for a variable rate is 6.5 points over the base rate up to $50,000, 6 points up to $250,000, 4.5 points up to $350,000 and 3 points above. The base can be prime or SBA’s optional peg rate; a lender can also use SOFR or a Treasury rate with a cap tied to prime. Default interest is not allowed on a 7(a) loan, except on SBA Express and Export Express loans. A 504 debenture is priced from market yields on long-term government debt on the sale date, so the rate is not known until the sale. This page states no current rate. SBA posts the maximum allowable fixed rate each month, the debenture rate is set at the monthly sale, and a lender’s rate is whatever it quotes. Use the calculators with the rate in your quote.
Looking for a lender now? Find lenders for this in your state or see SBA 7(a) lenders state by state.
Cash in, collateral and fees
A 504 project always asks for cash or land from you. A 7(a) loan asks for a 10 percent minimum for a start-up (a business in operation a year or less) and for a business purchase, with limited exceptions. For an established business buying property, the lender or SBA decides whether the business has enough equity.
Collateral differs. A 7(a) lender tests whether the loan is fully secured, and improved real estate counts at 85 percent of value, so a loan at 100 percent of the price leaves a shortfall that reaches the owners’ other real estate. In a 504 project the bank holds the first lien and SBA the second, and SBA generally treats that as adequate.
Fees in fiscal year 2027 (loans with an approval date from October 1, 2026 to September 30, 2027)
| 7(a) | 504 | |
|---|---|---|
| One-time SBA fee | Loans up to $150,000: 2% of the guaranteed portion. $150,001 to $700,000: 3%. $700,001 to $5,000,000: 3.5% of the first $1,000,000 of the guaranteed portion plus 3.75% above. The lender may pass it on | 0.50%, applied to the net debenture in the SOP’s pricing model |
| Yearly SBA fee | 0.55% of the guaranteed portion. The lender pays it and may not pass it on | 0.203% of the balance. The borrower pays |
| Relief | No one-time fee on loans of $700,000 or less to manufacturers, listed food supply chain businesses and rural businesses | One-time and yearly fees waived for the same groups, at any size |
| Packaging or processing | A lender may charge a packaging fee within SBA’s limits: up to 5% of a loan of $150,000 or less and 3% above, and never more than $30,000 | A development company may charge up to 1.5% of the net debenture |
| Prepayment | The lender may charge none. On loans of 15 years or more, SBA charges 5, 3 and 1 percent of the amount prepaid in years one to three if more than 25% is prepaid in a year | The debenture has a charge; ask for the schedule |
Add the servicing fee that a development company charges on a 504 loan, from 0.625 percent a year. A lender may not charge a 7(a) borrower points, commitment, origination or broker fees; only the fees SBA lists are allowed.
One project, priced both ways
Worked example (hypothetical). A veterinary practice, in business for ten years in a non-rural area, buys the $2,000,000 building it uses. It has $200,000 in cash. It is not a manufacturer, so no fee is waived.
As a 7(a) loan. The loan is $1,800,000. At 75 percent the guaranteed portion is $1,350,000. The one-time fee is 3.5% of $1,000,000, or $35,000, plus 3.75% of the other $350,000, or $13,125: $48,125, which the lender may pass on. The lender pays the yearly fee, 0.55% of $1,350,000, or $7,425 in year one. SBA counts improved real estate at 85%, so the building supports $1,700,000 of a fully secured loan. If the practice’s other pledged assets do not fill the $100,000 shortfall, the lender takes available equity in the owners’ other real estate, unless it has under 25 percent equity.
As a 504 project. The bank lends $1,000,000, the debenture is $800,000 net and the practice puts in the same $200,000. Priced by the SOP’s model, the gross debenture is $824,000. SBA’s one-time fee is $4,000, the funding fee $2,000 and the underwriter’s fee $3,296, all financed inside the debenture, plus up to $12,000 of processing fee. The yearly SBA fee is 0.203% of the balance, about $1,670 in year one. SBA’s second lien generally counts as adequate collateral.
The practice puts in $200,000 either way. What differs is the term of the bank’s loan, who holds the lien and the fee stack. Use the calculators for payments.
If you need both
When one business asks for a 7(a) and a 504 loan, SBA tells the lenders to process the 7(a) first. For example, the building can go on a 504 project and working capital on a 7(a) loan. Ask the lenders to flag the companion request to SBA at the start.
When neither fits
- The business is not eligible. Lenders, passive landlords, apartment buildings and others are out. Rental property belongs in the investor and multifamily lanes in Loan Comps.
- The credit is available elsewhere. If cash flow and collateral meet the lender’s conventional standards, SBA does not guarantee the loan.
- The request is too small. A microloan is up to $50,000 through an SBA intermediary, with a repayment term of up to seven years.
- The owners do not qualify. Every owner and guarantor must be a U.S. citizen or national living in the United States or its territories.
- The need is a revolving line. That points to CAPLines or SBA Express, not a standard 7(a) or 504 loan.
What the public record can and cannot tell you
For Oct 2023 through Sep 2026, the SBA files show 175,022 SBA FOIA, 7(a) loans with a middle size of $180,000, and 11,054 funded 504 loans with a middle bank first lien of $820,000. They name the lender, the project state and the industry. They do not show the borrower’s cash, the collateral or why a borrower chose one program. Use Loan Comps to find lenders that have done each kind at your size, then ask them what they would structure.
Terms used here
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
- SBA 504 loan: A fixed-asset financing in which a bank lends 50 percent or more, a certified development company funds up to 40 percent through an SBA debenture, and the borrower puts in at least 10 percent.
- SBA guaranty percentage: The share of a 7(a) loan that SBA guarantees to the lender: up to 85 percent of a loan of $150,000 or less, up to 75 percent of a larger loan, and 50 percent on SBA Express.
- Debenture (SBA 504): The bond a certified development company issues to fund SBA's share of a 504 project. SBA guarantees it in full, and debentures are normally sold once a month.
- Equity injection (SBA): The cash or other equity an owner puts into an SBA-financed project. A 7(a) start-up or business purchase needs at least 10 percent of total project cost; a 504 project needs 10, 15 or 20 percent.
- Upfront guaranty fee (SBA 7(a)): The one-time fee a 7(a) lender pays SBA for its guaranty, set by loan size and charged on the guaranteed portion. The lender may pass it on to the borrower.
- Annual service fee (SBA lender's fee): A yearly fee a 7(a) lender pays SBA on the outstanding balance of the guaranteed portion of each loan. On a 7(a) loan the lender may not pass it on to the borrower.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
Sources
Every rule and outside figure above comes from one of these, opened on . Dates are the source's own. Figures from this site's data carry their own source and date beside them.
- SBA SOP 50 10 8.1, Lender and Development Company Loan Programs (Section A, Chapters 3 and 4; Section B, Chapter 1; Section C, Chapters 1 and 3; Appendices 16 to 19), effective .
- SBA Information Notice 5000-881797, 7(a) fees for fiscal year 2027, published .
- SBA Information Notice 5000-881796, 504 fees for fiscal year 2027, published .
- 13 CFR 120.151, 120.210 and 120.930, loan limits and 504 loan amount, retrieved .
- 13 CFR 120.910, borrower contributions on a 504 project, retrieved .
- SBA microloans, retrieved .
Next step: check the record
- Loan Comps for the 7(a) example in this guideThe 7(a) side of the example below: a veterinary practice buying its building in Ohio. Change the industry, state and amount to yours.
- Loan Comps for the 504 example in this guideThe 504 side of the same project: the bank's $1,000,000 first lien.
- SBA lenders for veterinary practicesThe lenders that made 7(a) loans in one industry, to see who works at your size.
Keep reading
- SBA 7(a) payment calculator: Monthly payment with the FY2027 upfront guaranty fee, with the fee paid in cash or added to the loan.
- SBA 504 structure calculator: Bank loan, debenture and down payment for a project, and the fees that sit around them.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
- SBA 504 loan package checklist: A 504 project has three parties, two loans and a closing date set by a monthly bond sale. Build the package for all three.
- SBA Preferred Lenders Program and Express: how they differ: Some SBA lenders decide a loan on their own authority and some send it to SBA first. The difference changes who reads your file and who carries the risk.
- How to read SBA 7(a) and 504 loan data: The SBA publishes the 7(a) and 504 loans it guarantees, lender by lender, every quarter. It is the best public record of who lends to small businesses, and it is easy to misread.
- What to do after a bank says no to a business loan: One bank's no is one lender's answer, and the reasons are yours to ask for. They usually point to a constraint you can name.
Questions people ask
Can I use a 7(a) and a 504 loan on the same project?
Yes. When a business asks for both, SBA tells the lenders to process the 7(a) loan first, because it has the lower guaranty limit. Tell both processing centers that a companion request exists.
Does a 7(a) loan have a prepayment penalty?
The lender may not charge one. On a loan with a term of 15 years or more, SBA charges a fee if you prepay more than 25 percent in any one of the first three years: 5, 3 and 1 percent of the amount prepaid. A 504 debenture has its own prepayment charge; ask the development company for the schedule in writing.
Cite this
Source: The Lender Report, SBA 7(a) or 504: which fits your loan, https://lender.report/guides/sba-7a-or-504-which-fits/, data as of November 9, 2026.
General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.
SBA does not require you to use an agent or broker for a loan application. SBA has not reviewed or endorsed this site.
Source and date appear beside each figure. Banks report balances, not loans made. Loans made come only from HMDA and SBA files. We do not audit filings and can make errors joining them. Report a problem