How to Choose the Right SBA Loan

May 6, 2021

When it comes to financing, the Small Business Administration (SBA) offers a range of loan programs designed to support small businesses in various stages of growth. Understanding which SBA loan program best fits your business needs can be the key to unlocking growth and operational success. In this guide, we delve into the two primary SBA loan programs—the 7(a) and the Certified Development Company (“CDC”)/504—to help you make an informed decision.

What Is the CDC/504 Program?

The CDC/504 loan program is designed to assist small businesses with purchasing major fixed assets, such as equipment and owner-occupied commercial real estate. Key features include:

  • Loan Amounts and Terms: Loans can be $15 million or more with both the bank and SBA/CDC loans, with a typical down payment of 10%-20%. They offer fixed interest rates and are amortized over 20 to 25 years.
  • Usage: Funds are strictly for purchasing fixed assets and cannot be used for working capital or inventory.
  • Collateral and Fees: The CDC/504 program generally has lower fees compared to other SBA loans and does not require additional collateral beyond the asset being financed.

The CDC/504 program is ideal for businesses looking to invest in long-term assets without the burden of high collateral requirements and variable interest rates.

What Is the 7(a) Program?

The SBA 7(a) loan program is the most versatile SBA loan, offering funding for a broad range of business needs. Key features include:

  • Loan Amounts and Terms: Loans can go up to $5 million and may be used for working capital, purchasing inventory, and covering franchise fees. They typically come with variable interest rates tied to the prime rate, and terms can extend up to 25 years.
  • Usage: 7(a) loans are flexible, suitable for both operational expenses and capital expenditures.
  • Collateral and Fees: Generally, 7(a) loans require up to 90% collateral and may come with higher fees, especially for larger loan amounts.

The 7(a) program is well-suited for businesses needing flexible funding options for various operational and growth needs, although it may come with higher collateral requirements and fees.

Which Program Is Right for Your Business?

Choosing between the CDC/504 and 7(a) programs depends on your specific financial needs and business goals:

  • For Large Asset Purchases: If your goal is to purchase commercial real estate or expensive equipment, the CDC/504 loan might be more advantageous due to its lower fees and fixed interest rates.
  • For Operational Flexibility: If you need funding for working capital, inventory, or other operational costs, the 7(a) loan offers greater flexibility, albeit with potentially higher collateral requirements.

Ultimately, the best choice depends on your business’s financial situation and growth objectives. Research your options thoroughly and consult with your bank’s loan officer to determine which SBA loan program aligns with your needs.

SBA loans are designed to help your small business thrive with the right financial support. Understanding these loan programs can empower you to make the best choice for your business’s future.

Partner with Infinity Commercial Capital for Your SBA Loan Needs

Choosing the right SBA loan is a critical step in ensuring your business’s financial health and long-term success. At Infinity Commercial Capital, we specialize in guiding small business owners through the complexities of SBA loan programs. Our team of experts will work with you to evaluate your specific needs, helping you secure the financing that best aligns with your goals. Whether you’re looking to invest in real estate, purchase equipment, or cover operational expenses, we provide tailored solutions to support your growth. Contact us today to explore how we can help you leverage SBA loans for your business’s success.