504 vs. 7(a) and Conventional

SBA 504, SBA 7(a), and conventional loans differ in their focus and features. The 504 loan is for fixed assets with a low down payment and fixed rates, while SBA 7(a) and conventional loans offer more usage flexibility.

Choosing the right loan depends on business needs and eligibility.

	SBA 504 LOAN	SBA 7(a) LOAN	CONVENTIONAL LOAN
Down Payment Required	Minimum of 10%	Minimum 10% Often Higher	20-30%
Interest Rate	504 Second Mortgage Below-Market, Fixed Rate Lender First Mortgage Negotiated Fixed or Variable Rate	Typically Variable	Fixed or Variable Varies by Lender
Loan Term	504 Second Mortgage Fully Amortizing 10, 20, or 25-Year Loan Lender First Mortgage Minimum 10-Year Maturity (5-Year Maturity on 10-Year loan)	Up to 25-Years on Real Estate 7 – 10 Years on Equipment 5 – 7 Years Working Capital Weighted Average for Mixed-Use Requests	Varies by Lender Typically 3 – 10 years
Loan Fees	Fees Financed in Loan Approximately 2.17% of 504 Loan, and .5% of Lender First Mortgage Lender Loan Fees are Typically 1% but are Negotiable	Fees are Financed Typically 3-3.75% of Loan Depending on Loan Size	Fees are Paid Out-of-Pocket Typically 1% Negotiated with Lender
Closing Costs	Financed in the Loan	Financed in the Loan	Paid Out-of-Pocket
Prepayment Penalty	504 Second Mortgage 10-Year Declining (5-Year on 10-Year Loan) Lender First Mortgage Typically no Prepayment, though Negotiated with Lender	Typically 3-Years	Varies by Lender
Collateral	Typically the Fixed Assets Being Purchased or Refinanced	Typically the Fixed Assets Being Purchase or Refinanced though Additional Collateral May be Required for 90% Financing	Typically the Fixed Assets Being Purchased or Refinanced