Should I take SBA 7(a) or SBA 504?
For pure real-estate-only owner-occupied purchases or refinances: SBA 504 wins because of the 25-year fixed-rate debenture portion. For mixed-use deals (real estate + working capital + equipment combined): SBA 7(a) wins because it can fund all three uses in a single loan — 504 is real-estate-and-equipment-only. For pure working capital, partner buyout, or business acquisition without real estate: 7(a) is the only option. We routinely structure deals as SBA 7(a) for working capital alongside SBA 504 for the real estate piece — the two programs combine cleanly.
What does "owner-occupied" mean for SBA?
The borrower's operating business must occupy at least 51% of the rentable square footage of the building (60% on new construction). The remaining 49% can be leased to third parties. The owner-occupancy test is what makes SBA different from conventional commercial — it's a small-business support program, not an investment-property program. If you're buying a building purely as an investment with no operating business of your own occupying it, SBA is not your product.
How much down payment does SBA 504 require?
10% borrower equity is the standard SBA 504 contribution. New businesses (under 2 years operating) and special-purpose properties (hotels, gas stations, restaurants, single-tenant industrial) require 15% borrower contribution. New businesses purchasing special-purpose properties: 20% contribution. The remaining capital comes from the senior bank loan (50%) and the SBA debenture (40%).
How long does an SBA loan take to close?
SBA 7(a): 45–75 days. SBA 504: 60–90 days (longer because the CDC processes the debenture portion alongside the senior bank loan, requiring two parallel underwriting cycles). Owner-user purchases that need SBA 504 + 7(a) combination loans run on the longer end. Plan accordingly. We line up the CDC and the senior bank lender at term-sheet so they're moving in parallel rather than serially.
What is the SBA guaranty fee and how is it paid?
SBA charges a one-time guaranty fee at closing — the cost of the federal guaranty against borrower default. On 7(a), the fee is 2.5%–3.75% of the SBA-guaranteed portion of the loan (which is 75% of the loan amount on most files), depending on loan size. On 504, fees are smaller and built into the debenture pricing. The fee is typically financed into the loan balance — so the borrower doesn't bring it to closing.
Are SBA loans only for new businesses?
No — SBA loans serve businesses at every stage. Established businesses use SBA for major expansions (buying real estate, expensive equipment, partner buyouts, business acquisitions). New businesses use SBA for startup capital and early real estate. The eligibility test is "small business" (per SBA size standards, which vary by industry) and "for-profit operating company" (real-estate-investment-only is excluded for 7(a); 504 requires owner-occupancy). Existing businesses with strong operating history often get the cleanest SBA pricing.
Can I use SBA to buy a business?
Yes. SBA 7(a) is the most-used loan product for small-business acquisitions. Loan can fund 75–85% of the purchase price (depending on whether real estate is included), with seller financing or buyer equity covering the gap. The acquired business's historic cash flow plus 1.25× DSCR on the new debt is the basic underwriting test. Many partner buyouts and family-business successions run through SBA 7(a) acquisition loans.
Is the personal guaranty really enforced?
Yes. SBA requires personal guaranty from any 20%+ owner of the operating business or borrower entity. In default, SBA and the originating lender pursue the personal guarantor for the deficiency after collateral liquidation. The federal-government guaranty does not protect the borrower — it protects the lender. SBA is collection-aggressive on defaulted loans, including federal-tax refund offsets and professional license issues. Treat it as a real obligation, not a backstop.