SBA 504 vs 7(a) vs a Conventional Loan

SBA figures below come from SBA's pages and its operating procedure, SOP 50 10 8.1, effective October 1, 2026, as read in November 2026. They can change. Conventional terms are set by each lender within banking rules, so they are described in general terms only.

• SBA 504: a bank loan plus a CDC debenture guaranteed by SBA. Only for fixed assets and certain qualified debt. Available through Certified Development Companies.
• SBA 7(a): a lender's loan with a partial SBA guarantee, available for a range of business purposes, including real estate.
• Conventional: a lender's own loan with no SBA guarantee. Size, equity, term and guarantees are underwritten and negotiated with that lender.

One point to keep in mind from the start: the two SBA programs are not meant for companies that can readily get the same credit elsewhere. Under 13 CFR 120.101, SBA assistance is only for applicants when the desired credit is not otherwise available on reasonable terms from non-government sources. So a conventional quote is part of the picture, not only a competitor to SBA options.

• 504 equity: at least 10 percent in the standard structure; 15 percent for a new business or a limited or special purpose property; 20 percent if both.
• 7(a) equity: the SOP sets 10 percent for start-ups, and otherwise requires a determination that equity is sufficient. Your lender may set its own requirement.
• Conventional equity: set by the lender. Federal standards list a supervisory limit of 85 percent loan-to-value for improved property, which banks should not exceed in their internal limits except in stated exceptional cases. Banks may set lower limits, and that limit is not an offer.
• 504 limit: a $5,000,000 debenture cap for most projects, or $5,500,000 per project for small manufacturers and eligible energy projects. The bank's share is outside the cap.
• 7(a) limit: $5,000,000 per loan, with a $3,750,000 maximum guaranty to a business and its affiliates. Existing SBA loans count.
• Conventional limit: no SBA program cap. It depends on the bank's capacity and your credit.

A 504's lower equity may look decisive, but compare the total cash required, including fees and reports, as well as the cash you will have left to run the business.

• 504: buildings, land, long-term equipment and certain qualified debt. SBA's page says it cannot be used for working capital or inventory.
• 7(a): real estate, working capital, equipment, refinancing and more, including mixed-use loans.
• Conventional: whatever the lender will finance. The OCC handbook notes that owner-occupied loans may fund premises or other business purposes such as working capital.

Occupancy divides the options clearly. Under 13 CFR 120.131, both SBA programs require your company to occupy at least 51 percent of an existing building's rentable property, or 60 percent of a new one. Conventional lenders are not bound by that rule, though the handbook treats a building as owner-occupied only when third-party rent is under 50 percent of the source of repayment. If you plan to lease out most of a building, ask lenders how they would classify the loan.

• 504 rate and term: fixed on the CDC portion, with SBA's page pegging it to an increment above current 10-year Treasury rates; 10, 20 or 25 years. The bank portion has its own rate and a required minimum term.
• 7(a) rate and term: fixed or variable, with SBA caps, and up to 25 years for real estate.
• Conventional rate and term: varies. The handbook's examples include a five-year term with payments on a longer schedule, which leaves a balloon to refinance.
• 504 prepayment: premium set in the note, and the whole balance must be repaid.
• 7(a) prepayment: a subsidy recoupment fee of 5, 3 and 1 percent in years one to three on large voluntary prepayments, for loans with maturities of 15 years or more.
• Conventional prepayment: negotiated. Read it carefully.

If you might sell, expand or restructure ownership within a few years, the prepayment terms and any change-of-ownership conditions can matter more than a small rate difference. Ask what would happen under each loan.

Both SBA programs add program requirements on top of a bank's credit decision. A 504 involves a bank and a CDC, plus interim financing until the debenture sells. A 7(a) runs through one lender, though SBA rules still apply, including environmental and appraisal requirements. A conventional loan depends on one lender's process.

On guarantees, the SOP requires an unlimited full guaranty from any individual with 20 percent or more ownership, for both SBA programs. On a conventional loan, the OCC handbook describes limited guarantees and carve-out nonrecourse structures, which are negotiated.

These are reasonable starting points. They are not rules, and a lender may reach a different view for your company.

• You want to keep cash in the business and the project is purely a building and long-term equipment: start with a 504 quote.
• You also need working capital or other non-real-estate funds in the same loan: start with a 7(a) quote.
• You will not meet the SBA size test, the occupancy test or the credit elsewhere test: go to conventional lenders.
• You expect to sell or restructure within a few years: compare prepayment terms first.
• The building is specialized: expect more equity under the 504 rule, and ask conventional lenders how they treat it.

1. Prepare one package: financial statements, tax returns, the building, the price and your planned occupancy.
2. Ask a CDC, an SBA lender and at least one conventional lender to quote the same deal.
3. Compare total cash at closing, payment in year one, balance at maturity, prepayment and guarantees.
4. Have your CPA test the payments against your cash flow and your attorney read the documents.
5. Choose the loan, then set the contract's financing period to match its real timetable.

Tenant Advisory Group is a broker and not a lender. We do not make loans or set their terms. We focus on the property: its occupancy fit, its contract dates and the negotiation with the seller, while you and your lender decide how to finance it.