What is the difference between a 504 loan and a 7(a) loan?
Short answer
A 504 loan finances long-term fixed assets through a bank and a Certified Development Company. A 7(a) loan comes from one lender and can also cover working capital, inventory and business purchases. Each has its own limits, rates and fees.
A 504 loan is built for long-term fixed assets. A 7(a) loan is a broader loan from one lender. SOP 50 10 8.1 covers both.
Side by side
- Who makes it. 504: a third party lender plus a CDC. 7(a): one SBA lender.
- Uses. 504: major fixed assets such as land, buildings and long-term machinery and equipment, not working capital or inventory. 7(a): those assets plus working capital and inventory (Sec. A, Ch. 3, Para. A, p. 51), and a change of ownership (Sec. B, Ch. 1, Para. A, p. 117; App. 15).
- Size. 504: a debenture of up to $5,000,000, or $5,500,000 per project for small manufacturers and eligible energy projects. 7(a): up to $5,000,000.
- SBA's share. 504: a debenture guaranteed 100%. The standard structure is 50% third party lender, 40% CDC debenture, 10% borrower. 7(a): 85% on loans of $150,000 or less and 75% on larger loans.
- Rate. 504: fixed, set at the debenture sale. 7(a): fixed or variable, within SBA maximums. The variable maximum is Prime plus 3.0 to 6.5 percentage points, depending on loan size.
- Term. 504: 10, 20 or 25 years. 7(a) real estate: up to 25 years, plus any reasonable construction or renovation period.
- Your contribution. 504: at least 10% of the financing, 15% for a new business or limited or special purpose property, and 20% for both. 7(a): at least 10% of total project costs for a start-up. An Initial Acquisition needs 10%, which cannot be reduced or eliminated. Other changes of ownership have their own minimums (App. 15, Para. C.2.a). Otherwise the lender or SBA judges equity.
- Job test. 504: a job standard or another listed economic development goal (Sec. C, Ch. 1, Para. A, p. 219). The 7(a) chapters set none.
Where they match
Occupancy rules are the same (13 CFR § 120.131).
Using both
You can pair them, and the 7(a) loan should be approved first (Policy Notice 5000-879058; App. 16). Rates and lender terms vary, so compare the full cost of each.
Sources
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. A (p. 51)
- SOP 50 10 8.1, Sec. B, Ch. 1, Para. A (p. 117)
- SOP 50 10 8.1, Sec. C, Ch. 1, Paras. A-D (pp. 219-241)
- SOP 50 10 8.1, App. 15, Para. C.2.a (Para. C begins p. 371)
- SOP 50 10 8.1, App. 16 (p. 387)
- SOP 50 10 8.1, App. 17 (p. 390)
- SOP 50 10 8.1, App. 18, Para. A (p. 395)
- SOP 50 10 8.1, Sec. B, Ch. 1, Para. C (p. 118)
- SBA Policy Notice 5000-879058, pp. 1-3 (effective July 4, 2026)
- 13 CFR § 120.131
- sba.gov/loans/504-loans (read November 8, 2026)
- sba.gov/sba-lenders (read November 8, 2026)
- 13 CFR § 120.214(d)
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