Can I pair a 504 and a 7(a) to buy a business and its building?

Yes, as separate loans. Appendix 15, Para. B.1, of SOP 50 10 8.1 allows one loan for the sale and one for real estate, including a 504. Section C, Ch. 1, Para. C.13, says goodwill and receivables must be financed by other means, which may include a 7(a) loan.

What the 504 side requires

• It finances only eligible long-term fixed assets, and the application must document jobs created or retained.
• The buyer must end up owning 100% of the business, and the seller may not remain as an officer, director, stockholder or Key Employee.
• The property must appraise for 100% of the estimated value (Para. E.2.b).

Equity on each side

Real estate bought in the deal carries the same equity requirement. If the real estate uses a 504, equity on that part follows 504 rules instead (Appendix 15, Para. C.2.a). Borrowers contribute at least 10% of the financing, 15% for a new business or limited or special purpose property, and 20% for both. On a change of ownership, the Certified Development Company (CDC) must decide whether an additional 5% is necessary (Appendix 3, New Business).

Sequence and limits

The 7(a) loan should be processed and approved first, and lenders must flag the companion 504 application (Appendix 16, Para. A.1). SBA Notice 5000-879058 says a 7(a) balance up to the maximum loan limit does not reduce the amount available under the 504 program.

A 504 cannot be blended into a single maturity with the 7(a) loan (Appendix 15, Para. B.1). Separate loans must also meet the piggyback rules in Para. C.3.c.