The $1M SBA Loan: What 7(a) and 504 Look Like at That Size

At smaller sizes the choice between SBA programs is mostly about paperwork. At around $1M it becomes a structural decision that changes your down payment, your rate exposure, and what you are allowed to buy.

The full program comparison is in SBA 7(a) vs 504. This is what changes specifically at that size.

The structural difference

7(a) is one loan from one lender, partially guaranteed by the SBA. It is flexible about use of proceeds: real estate, equipment, working capital, and business acquisition can sit in the same facility.

504 is two loans. A conventional first from a lender, plus a debenture through a Certified Development Company, with you contributing the balance. It is specifically for fixed assets: owner-occupied real estate and long-life equipment. It cannot fund working capital.

Why the split matters at $1M

• Use of proceeds. Buying a building and needing operating cash on the same transaction points to 7(a). Buying only the building points to 504.
• Rate structure. The 504 debenture is long-term fixed-rate financing, priced off an increment above the 10-year Treasury. A 7(a) can be written either fixed or variable, so on a seven-figure balance you have to ask which one you are being quoted. Over 25 years that difference compounds into real money.
• Prepayment. The two programs treat early payoff differently, which matters if you might sell or refinance. See prepayment penalties for the general mechanics.
• Timeline. Two lenders and a CDC is more coordination than one lender.

The occupancy rule applies either way

SBA real estate financing is for owner-occupied property. Under 13 CFR 120.131 you have to occupy at least 51% of the rentable space in an existing building, and at least 60% in new construction, where no more than 20% may be permanently leased out. An investment property you intend to lease out entirely is not an SBA deal, whatever the size. That is the line where most inquiries actually end.

If the property is investment rather than owner-occupied, the route is CRE permanent or CRE bridge, and SBA 7(a) vs conventional sets out that fork.

Our role

We place SBA 7(a) and 504 through a panel of more than 20 SBA lenders and match the file to the one that fits it, rather than pushing every deal through one desk. Terms run up to 25 years with financing up to 90%.

Model payments in the SBA loan calculator, and see SBA down payment and terms for the equity side. Program rules are set by the SBA and lender, not by us. Not a commitment to lend.