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SBA Loan Comparison Flowchart: What's the Best SBA Loan for Me?

Published Aug 26, 2022 · 1 min read · Content Team

Key takeaways

  • The Small Business Administration (SBA) offers several different loan programs to small businesses.
  • The SBA loan decision-making flowchart can help you figure out which loan is best for your situation.
  • The SBA 7(a) loan program is the most popular SBA loan program.
  • You can apply for an SBA loan through a number of different lenders.

You know you need financing for your small business, but you're wondering which SBA loan product to choose. With several different core programs like the Standard 7(a), Small loan, and CAPlines, it's tricky to figure out which loan is best for your situation. To get started sorting out the differences, download the SBA loan decision-making flowchart below.

Download the SBA loans flowchartSBA-loan-flowchart.jpg

To learn more about the SBA 7(a) loan program or to Apply for a free quote, simply click the button below to connect with an sba loan specialist!

What are the differences between SBA 7(a) and 504 loans?

The differences between the SBA 7(a) and the SBA 504 loans are primarily in how they're used. For example, the 7(a) allows you to use the funds from the loan for working capital, which you can't do with the 504. The 504 is larger, and has terms that are better suited to land and real estate projects that are large enough to be handled by multiple lenders.

The 7(a) favors start-ups and small business owners looking to work with a bank, credit union, or other traditional lending institution. Eligibility requirements for the 7(a) are straightforward, and are designed to encourage lenders to approve small business owners for projects small and large. There is no minimum loan amount for the SBA 7(a), and the loan can be used for nearly any legitimate business purpose. Some of the terms of the SBA 7(a) are based on the amount of the loan, but banks generally ask for a 10% down payment from the borrower.

The SBA 504 loan is designed for larger projects, such as land and real estate projects. The loan is typically handled by multiple lenders, and the terms are better suited for these larger projects. The funds from the SBA 504 loan cannot be used for working capital, but can be used for purchasing new equipment, repairing damaged real estate, expanding into new locations, regular supply costs, or nearly any other legitimate business expense.

What are the eligibility requirements for an SBA 7(a) loan?

The eligibility requirements for an SBA 7(a) loan include:

  • The business must meet the SBA's size standards for its particular industry.
  • The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
  • The business must physically be based in the U.S. and operate within the U.S. and its territories.
  • The business must operate for profit.
  • Business owners must first have used other sources of financing, including personal funds, in order to qualify.
  • Businesses must not be involved in lending, real estate, or speculation.
  • Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
  • You must also have some equity in the business, this could mean you already have a profitable business, or you could use your own personal equity as collateral.
  • If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
  • The business owner cannot be on parole.
  • You must be doing business in the U.S. or its territories.
What are the advantages of an SBA 504 loan?

The SBA 504 loan program offers several advantages to businesses in need of purchasing fixed assets. These include:

  • Lower interest rates than 7(a) loans and express loans
  • Lower down payment requirements than 7(a) loans and express loans
  • Long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization
  • Fully amortized without a balloon payment
  • Terms for SBA 504 financing are typically 10, 15, or 20 years

For more information, please visit https://sba504.loans/sba-504-blog/what-is-the-sba-504-loan and https://www.sba.gov/offices/headquarters/ofa/resources/4049.

What are the maximum loan amounts for SBA 7(a) and 504 loans?

The maximum loan amount for the SBA 7(a) is $5 million, and there is no minimum. The maximum SBA 504 loan amount is between $5-5.5 million -- the SBA sets certain conditions a business can meet in order to qualify for $5.5 million, most of which are at the discretion of the SBA. Source and Source

What are the repayment terms for SBA 7(a) and 504 loans?

The repayment terms for SBA 7(a) loans vary depending on the type of loan. For commercial real estate loans, the loan term is up to 25 years. For equipment loans, the loan term is up to 10 years. For working capital loans, the loan term is also up to 10 years. The maximum loan size is up to $5 million and the maximum interest rate is between 7.25% and 9.75%.

For SBA 504 loans, the loan term is up to 20 years for real estate and 10 years for equipment. The maximum loan size is up to $5.5 million and the maximum interest rate is 4.5%.

Learn more: Understanding How the SBA Guarantees Loans

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