What's the difference between an SBA 7(a) and a 504 loan?

A 7(a) is general-purpose: working capital, equipment, inventory, acquisitions, and real estate up to $5 million, at a negotiated (SBA-capped) rate. A 504 funds only fixed assets (buildings, land, heavy equipment) through a CDC at a fixed, below-market rate pegged to the 10-year Treasury. Most first-time borrowers want the 7(a).

Can I use a 504 loan for working capital?

No. A 504 loan funds fixed assets only: commercial real estate, land, and long-life equipment. It cannot cover working capital or inventory. If you need a building plus operating cash in one package, a 7(a) can do both. A 504 can't, which is why many building purchases close as 7(a) loans.

Which is cheaper, a 7(a) or a 504?

For long-term fixed assets, a 504 usually wins on rate. Its CDC portion is a fixed, below-market rate pegged to the 10-year Treasury. A 7(a) is more flexible but typically carries a variable, SBA-capped rate. The right answer depends on what you're buying and how long you'll hold it.

Which SBA loan should a first-time borrower choose?

Usually the 7(a). It's the SBA's general-purpose loan and covers the widest range of needs: working capital, equipment, inventory, and acquisitions up to $5 million. Reach for a 504 only when you're buying a building or heavy, long-life equipment and don't need working capital in the same loan.

SBA 7(a) vs 504 Loans: Which Fits Your Deal? (2026)

7(a) loans fund working capital, equipment, and acquisitions up to $5M. 504 loans fund buildings and heavy equipment at a fixed, below-market rate, but never working capital. Here's how to pick.

Two business owners walk into the same bank asking for "an SBA loan." One leaves with a 7(a). The other leaves with a 504. Same bank, same week, completely different products, and neither owner picked the loan. What they were buying picked it for them.

That's the five-minute version of this whole article. What you're buying determines your loan. Here's how to know which one you're walking into before the lender tells you. (Current as of 2026. SBA terms change, so confirm specifics with your lender.)

What does an SBA 7(a) loan cover?

The 7(a) is the SBA's general-purpose loan and the one most first-time borrowers want. It covers working capital, equipment, inventory, business acquisitions, partner buyouts, refinancing, and real estate, up to $5 million. Rates are negotiated with the lender and capped by the SBA, and most deals carry a variable rate tied to a base rate like prime.

If your sentence starts with "I need money to..." and ends with anything other than "build or buy a building," you're probably shopping for a 7(a). A restaurant owner buying out her partner? 7(a). A trucking company adding three rigs plus a fuel cushion? 7(a). A dentist acquiring a retiring competitor's practice? 7(a) again.

What does an SBA 504 loan cover?

The 504 funds fixed assets: commercial buildings, land, and heavy equipment with a useful life of 10 years or more. It can't be used for working capital or inventory, not a dollar of it. That single restriction is what disqualifies most borrowers who think they want a 504.

The structure is different, too. A bank funds roughly 50%, a Certified Development Company (CDC) funds about 40% backed by the SBA, and you put down as little as 10%. The prize is the rate: the CDC portion carries a fixed, below-market rate pegged to the 10-year U.S. Treasury, locked for a 10-, 20-, or 25-year term. Most 504 projects top out around $5 million (up to $5.5 million for small manufacturers and eligible energy projects). For a building you'll hold for decades, that fixed slice is worth real money.

The decision in one list

Working capital or a payroll cushion: 7(a)
Inventory: 7(a)
Buying a business (acquisition or partner buyout): 7(a)
Light equipment and vehicles: 7(a)
A commercial building: 504, or 7(a) if you also need working capital in the same loan
Land plus construction: 504
Heavy machinery with a 10+ year life: 504

One nuance worth money: if you're buying a building and need working capital in one package, a 7(a) can do both in a single loan. A 504 can't. Plenty of deals that look like 504s close as 7(a)s for exactly that reason.

What do lenders look for in either program?

The credit boxes are similar. Most lenders want a personal credit score around 640 or higher from every guarantor (many community banks prefer 680+), cash flow that covers the new payment with room to spare (a debt-service coverage ratio of about 1.15–1.25 or better), and real skin in the game, roughly 10% down. Two years of tax returns makes everything easier. Start-ups can still get funded, but expect more weight on projections, collateral, and your experience.

How long does each one take?

A 7(a) through an SBA Preferred Lender (PLP) can close in about 30–45 days because the lender approves in-house. Non-preferred lenders send the file to the SBA, which adds roughly 2–4 weeks. A 504 usually runs longer, about 60–90 days, because two institutions (the bank and the CDC) underwrite the same deal. The biggest delay in either program isn't the lender. It's incomplete paperwork.

Either way, you need a lender who actually writes them

Here's the trap: most banks can technically offer SBA loans, but most wrote very few last year. Walking into the wrong branch costs you a month of "we'll look into it." Every lender in this directory has active SBA lending operations. Find yours by state, check the rating, and call someone who already says yes to loans like yours.

SBA 7(a) vs 504: Which Loan Fits What You're Buying?