If you’re looking for a small business loan to help your company advance toward a new stage of growth or expanded volume of business, it’s not hard to figure out that the Small Business Administration’s programs are the best game in town for companies of a certain size, at least for the basic long-term loans needed to buy a company, new equipment, or facilities to house your operation. Not all the SBA’s programs do the same thing, though. So which one do you need? A 7a loan or a 504 SBA loan? It can be tough to figure out at first, but there are a couple simple questions to ask yourself.
Are You Buying a Building?
If the answer to this is yes, you probably want to use the 504 program. The 7a program is designed more for the purchase of equipment or entire companies. The 504 program is specifically for commercial real estate. Even if you can get a 7a loan approved for a building, the 504 program finances the purchase of properties up to $20 million, but the 7a program’s loan maximum is only $5 million, so you won’t get as much building for your buck. The 504 program also has terms built to work for companies buying a property, like guaranteed fixed interest rates for the life of the loan. Using the 504 program also means you don’t need any collateral outside of the property in question to close the deal, kind of like you would see with a mortgage.
7a Loans for Purchasing Companies or Equipment
If you’re purchasing a whole company or you need new machines, then you won’t be able to apply for a 504 SBA loan to cover those costs. The 7a program is built to handle your needs, though. You will need collateral, although sometimes the equipment in question can be used to cover the requirement. You also need to realize that some 7a loans have flexible interest rates, but not all of them. Applying with a few preferred lenders to see the range of options and the trade-offs that come with a fixed rate versus an adjustable one can help you figure out which way forward is right for you.
Other SBA Loans
If your business has recently been affected by a disaster but you are not looking to buy new equipment or facilities, the SBA also has a line of disaster loans meant to provide relief. Companies looking for emergency funds while preparing to reopen should investigate those options, as there are multiple programs meant to meet a range of needs after disaster strikes, as well as the long-term loans meant to help you buy the assets your business depends on.