Which Loan Is Best For You?

Affinity loves working with the SBA and not only learning from them, but also sharing that knowledge so our clients can benefit from all the services they have to offer. As a small business, capacity building and financing seem to be the most difficult to achieve and deciding on what loan program works for you and your business can be a nightmare. There are a lot of things to consider! Good news is the SBA has some information that will help you decide. Today I am going to talk about the CDC/504 and 7(a) loan.

When making your decision, the first thing to consider is what you’ll be using this loan for. For CDC/504 Loans, Eligible uses consist of buying, building, or renovating commercial real estate; Purchasing capital equipment and machinery; and limited refinance of a conventional commercial real estate and equipment debt when an expansion of the business is involved. Now for 7(a) loans, it’s a little different. Eligible uses consist of starting, expanding, or acquiring a business; buying, building, or renovating commercial real estate; refinancing existing debt; purchasing capital equipment and machinery; working capital and inventory; and acquiring lines of credit.

That’s the starting point. If you’ve already made your decision just on that information alone, great! If not, that’s okay. I am now going to go into a little more detail about each loan type.


  • Maximum loan amount is 40% of the total project costs and up to $5 million or $5.5 million for small manufacturers or projects that meet Energy Public Policy goals for energy reduction or upgrades of renewable energy sources.

  • Down payment for all projects is 10%.

  • Maximum loan term is 20 years of real estate, ten years for equipment, and projects involving both may qualify for a 20-year term.

  • For the portion financed by the SBA 504 program, a 20 year fixed interest rate is available. The portion financed by the bank is set by the respective bank.

  • Fees for the SBA 504 portion is 2.6%.

  • The property or equipment being financed is sufficient to meet collateral requirements

  • A prepayment penalty for the SBA 504 portion exists for the first ten years and is a declining percentage of the outstanding loan balance.


  • Maximum loan amount is up to $5 million with a maximum SBA guaranty of $3.75 million.

  • Down payment requirement is determined on a case by case basis

  • Maximum loan term is ten years, or up for equipment, up to 10 years for working capital, debt refinance is based on the remaining useful life of asset financed.

  • The interest rate is typically variable but is determined on a case-by-case basis.

  • Fees range from 2.0% to 3.75% of the guaranteed portion of long-term loans and 0.25% for short-term loans or 12 months or less.

  • For 7(a) loans, SBA requires all loans to be collateralized to a maximum extent possible up to the loan amount. Otherwise, personal belongings will be used.

  • There is typically no prepayment penalty

For both loans, eligibility requirements include operating for profit, located in the United States, defined as a small business or have a net worth of less than $15 million, demonstrate a need for the desired credit with credit not available elsewhere, and not listed under non-eligible businesses.

For more information regarding these loans and how to apply, please visit the U.S. Small Business Administration’s website.

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