Smart Money: How a SBA loan can help your business

The U.S. Small Business Administration is a federal agency that assists small businesses with capital needs primarily through its partnerships with banks. You can find information about the agency and what they provide at

One of the SBA’s missions is to partner with approved banks to meet the financing needs of small businesses. Two of the largest programs offered through the SBA are the 7a and the 504 loan programs.

The 7a program offers a wide variety of financing possibilities for small business needs including lines of credit, working capital, inventory and equipment financing, business acquisition financing, franchise financing, funding tenant improvements in leased spaces, and real estate purchases including ground up construction financing. The 504 program is for large, fixed-asset financing including real estate purchases and construction, and some equipment financing, if the useful life of the equipment is 10 years or longer.

A small business owner might ask why they would need SBA financing instead of conventional financing? Reasons could include if the business is newer and might not have a proven track record. For example, start up financing is an option through the SBA and not available conventionally. Another reason is if the small business wants to preserve cash for operations but still needs financing for growth. SBA lending offers lower down payments than conventional loans. An SBA loan to purchase real estate generally only requires a 10 percent down payment, while a conventional loan requires a 25 percent down payment. SBA financing also offers a longer maturity with no balloon payments compared to conventional financing. Conventional financing will amortize a real estate loan over 25 years, but that loan will generally have a five-year maturity. This means that in five years the small business will have to re-qualify for the loan and the bank will renew it and charge another fee. If the economy has changed or the bank decided not to finance that type of real estate any longer, the small business would be faced with paying the loan in full or refinancing with another bank, incurring all the costs of a refinance. SBA financing offers peace of mind for the small business owner since SBA loans do not have balloon payments.

For equipment loans, a conventional loan will have a term of 3-5 years resulting in a larger monthly payment than an SBA loan. SBA equipment loans have a 10-year term with no balloon payments. This results in a lower monthly payment, allowing the small business to preserve capital for growth.

The SBA 7a loan program can provide a maximum loan of $5 million. The SBA guarantees a portion of the loan, usually 75%, which helps induce a lender to make the loan. On the SBA 504 loan program, the lender participates with the SBA to offer combined financing that can total up to as much as $15 million.

Recent program enhancements make it a great time to apply for an SBA loan. For instance, the SBA 7a loan program is waiving the SBA guaranty fee for loans of $500,000 or less. This offers thousands of dollars in closing costs savings to the small business.

The 504 loan recently added the ability to refinance existing debt and now allows a small business the option to take cash out of their building to use as working capital in the business.

As a recap, here is a comparison for both popular SBA loan programs.

7a Use of Funds

Working Capital


Lines of Credit

Business Acquisitions

Franchise Lending

Equipment Financing

Real estate purchase or construction

Debt refinance (within guidelines)

7a Loan Size

Up to $5 million

7a Amortizations

10 years for working capital, inventory, equipment or acquisitions

Up to 25 years for real estate

504 Use of Funds

Equipment with useful life over 10 years

Real estate purchase or construction

Debt refinance of equipment or real estate (within guidelines). Can include cash out.

504 Loan Size

Combined Bank and SBA loan up to $15 million

504 Amortizations

10 years for equipment

Up to 25 years for real estate

Meadows Bank is an SBA 7a preferred lender. This means the 7a loan can be approved and closed by the bank on behalf of the SBA, making the loan processes quicker. Meadows Bank offers both the SBA 7a and 504 loan program options nationwide and can work with small businesses to determine the best program for their financing needs. Visit to talk with a local lender and for information and resources on SBA loans.


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