The Small Business Administration (SBA) offers business owners several commercial Real Estate loan options for buying, renovating, and expanding owner-occupied property. The SBA’s two most popular loan programs, SBA 7(a) and SBA 504, each offer unique benefits for buying a property depending on the type of facility, business, and financing structure needed. To help you understand what program is best for your business, we’ll describe the fundamental differences between the two programs below. 

When should you use an SBA 7(a) loan?

An SBA 7(a) loan would be suitable when in addition to purchasing a property, a business will need working capital, and/or equipment financing.  The SBA 7(a) loan program is the most popular and flexible loan program offered by the SBA. It offers loan amounts ranging from $350,000 to $5 million, with repayment terms of up to 25 years, and up to 90% LTV. The interest rate on an SBA 7(a) loan is based on WSJ Prime Plus 2.5% to 3% and is adjustable quarterly. To qualify for an SBA 7(a) loan the business must occupy at least 51% of the property. In addition, the business must be owned by a U.S Citizen or Green Card Holder, be for-profit, must have two years of operating history, operate in the U. S. and have a net worth of less than $15 million. 

When should you use an SBA 504 loan?

The SBA 504 loan program allows small businesses to obtain long-term, fixed-rate financing for the acquisition and improvement of land, and owner-occupied properties, as well as ground-up construction and equipment financing related to the property.

The SBA 504 loan program provides long-term, fixed-rate financing for small and middle market businesses, offering maturity of up to 20-year term for Real Estate and up to 10 years for equipment.  

The working capital and interest reserves after a certificate of occupancy must be covered by the borrower or can be financed via SBA 7(a) or SBA express loans. As with the SBA 7(a), to qualify the borrowing entity must show sufficient Net Income to service the loan, occupy at least 51% of the subject property, must provide at least 2 years of business tax returns, and must be owned by a U.S Citizen or Green Card Holder. All shareholders with 20% stake or higher must personally guarantee the loan. All borrowers must have a minimum credit score of 680 or higher.

In addition, to the above SBA programs, the SBA Express Loan program can be used to purchase or expansion of the owner-occupied property, when the loan amount required is below $350,000. 

It is also important to understand that SBA financing can only be used for owner-occupied Real Estate. You cannot purchase an investment property using SBA financing.

How can I determine which SBA loan program works best for me?

We at 504 Advisors., Inc. can help you decide which of the SBA financing programs is best for your business. After discussing your goals and better understanding your business, we will guide you through the financing options and the loan application process.

Our goal is to be your trusted financial partner and advisor, by providing our clients with access to capital and financing solutions necessary to run their business.

Capitalize on our relationships and find the best loan that fits your needs. For more information visit

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