SBA 504 vs. 7(a) Loans for Commercial Real Estate

Hi I’m Bill Ebersole with community CDC. Today’s blog is about differences in SBA loan programs specifically with regard to real estate financing. Community CDC has been doing commercial real estate financing since 2005 and we run into a lot of questions that borrowers have about what’s the best program for me? Is it the SBA 504 program or the SBA 7a program?

When it comes to financing real estate the answer almost always is going to be the 504 option is the best option for your business. Why is that? The 504 program offers many advantages that the 7a loan doesn’t. The 504 program offers fixed rates for twenty years. Most 7a loans that you would get through a bank are variable rate loans. The 504 and the 7a programs are both great programs, but they focus on different purposes.

The 504 program is specifically for real estate and equipment financing. There’s a big advantage to you as a business owner to be able, if you’re doing a new project, you’re growing into a new facility, there is a great advantage for you in getting a fixed-rate.

Especially in an interest rate environment like we’re in right now where, yes interest rates are low and have been for a while, but they’re going to be rising over time. The 7a program typically does not offer a fixed-rate option. Most lenders would give you a variable rate which might be a good payment now, but as time goes on a as interest rates rise, so does your loan payment.

So it’s an important difference to know that the 504 program allows you to fix a rate where the 7a does’t. The SBA 7a product is typically well suited to projects that have inventory needs, working capital needs. There are times where it is a good product for real estate but in the situation where you’re going to be holding your real state for the long-term typically the 504 is better with a fixed rate. Realize that a lot of banks don’t necessarily have an expertise in SBA lending or they may have an expertise in the SBA 7a program but not in the 504 program.

Also there are some lenders who favor the 7a program for real estate projects, even though it may not be in your best interest because they view it as a more lucrative product for their institution. It’s just something to be aware of. The bottom line is come to Community CDC we’re all about looking at all the options helping you decide what’s best for your business. Community CDC Business Loans for Business Dreams.