SBA Loans: Preparation for 7(a) and 504

SBA-backed financing can give small-business owners access to financing that may be difficult to obtain on conventional terms. The programs are worth understanding before you enter a lender process, because preparation changes the quality of the questions you can ask and the decisions you can make.

7(a) is SBA's primary general-purpose business loan program. It can support needs including working capital, equipment, real estate, refinancing and changes of ownership, subject to current program and lender requirements. A 7(a) loan may carry a fixed or variable interest rate.

504 is designed primarily for major fixed assets such as owner-occupied real estate and long-life equipment. The transaction involves a senior lender and a Certified Development Company, with the 504 structure providing long-term fixed-rate financing for the SBA-backed portion.

SBA establishes the program requirements. Lenders make credit decisions, and 504 transactions also involve CDCs certified and regulated by SBA. The documents, calculations and questions applied to an individual file can therefore include both published program requirements and transaction-specific lender or CDC analysis.

You do not need to wait until an application is underway to examine the basic repayment picture, existing debt, working-capital needs, ownership and affiliation, proposed loan terms, project costs and the documents supporting the request. That is the purpose of this section.