SBA 7(a) vs 504: two programs, built for different projects.

The short version

Our SBA loans page explains each program on its own. This page compares them, so you can see which one matches your project before you talk to a lender.

Pick by what the money is for. 7(a) can pay for real estate and buildings, working capital, refinancing business debt, machinery and equipment, furniture and fixtures, and changes of ownership^[1]. 504 pays for the purchase, construction or renovation of buildings or land, and for long-term machinery and equipment^[2]. It cannot be used for working capital or inventory^[2].

So a project that mixes needs, such as equipment plus working capital, usually points to 7(a). A project that is mostly a building your business will use, or a major machine, is where 504 is built to work.

Side by side

How a 504 deal is put together

A typical 504 project combines three pieces^[3]:

• A loan from a private sector lender, which holds the senior lien^[3].
• A loan from a Certified Development Company, backed by SBA, which holds a junior lien^[3].
• A contribution of your own equity toward the total project cost^[3].

Certified Development Companies are SBA's community-based nonprofit partners, and they are certified and regulated by SBA^[2]. 504 loans are available only through them^[2]. Costs directly tied to the project, including professional fees such as appraisals, environmental studies and architectural and engineering costs, can be eligible project costs^[4].

If the building is for rental income rather than your own operation, 504 is not the tool^[2]. Our commercial real estate page covers other ways businesses finance property.

How a 7(a) loan works

SBA does not make 7(a) loans directly^[1]. You apply through a local lender, and the lender helps you work out which documents you need^[1].

To be eligible, a business must be operating, operate for profit, be located in the U.S., be small under SBA size rules, and not be an ineligible type^[1]. It must also be unable to get the credit it wants on reasonable terms from non-government sources, and be creditworthy with a reasonable ability to repay^[1].

7(a) also covers some revolving needs. SBA's CAPLines program helps small businesses with short-term and cyclical working capital, and the Seasonal CAPLine finances seasonal increases in receivables and inventory^[3]. For equipment outside SBA programs, see equipment financing.

What to ask before you choose

• Which program fits my project, and why that one?
• What will the whole package cost in dollars, including every fee you pass on to me?
• What collateral will secure the loan? Under SBA's rules, owners of a large share of the business generally must sign a personal guarantee^[5].
• For 504: who is the Certified Development Company, and who is the senior lender?
• Can I pay it off early, and does that change what I owe?
• Which documents do you need from me, and in what order?

What ROK will want to see

ROK describes SBA loans as government-backed loans issued by partner lenders and covers both 7(a) and 504^[6]. ROK's SBA page lists higher minimums than its general application^[6], so read that page before you apply for an SBA loan through ROK.

ROK's partner application lists at least 4 months in business and at least $10,000 in monthly gross sales^[7]. Lenders commonly look at credit history, cash flow, equity and collateral^[3]. Credit is one input among several.

• Business and personal tax returns, and current financial statements.
• Twelve months of business bank statements.
• For a building: the purchase contract or construction bids.
• For equipment: quotes with make, model and expected life.
• A short summary of what the money is for and how it gets repaid.

ROK Financial and the lenders it matches you with make every funding decision. Our funding readiness guide lists the documents in more detail.