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An SBA guarantee fee is a program-level fee charged on certain SBA loans to offset the cost of the U.S. Small Business Administration guaranteeing a portion of the loan. While the fee is assessed to the lender, SBA rules allow lenders to pass this cost on to the borrower. The fee applies only to the portion of the loan guaranteed by the SBA, not the total loan amount.

What changed for SBA guarantee fees in FY 2026.

The U.S. Small Business Administration updated SBA loan fee structures for Fiscal Year 2026, with changes that affect both the SBA 7(a) and 504 loan programs.

Key FY 2026 updates include:

• SBA 7(a) guarantee fees remain largely unchanged from prior guidance, with upfront fees continuing to vary based on loan size and loan maturity.
• New for FY 2026: SBA introduced full fee waivers for qualifying manufacturer loans (NAICS sectors 31-33) under the SBA 504 program, eliminating both the upfront guarantee fee and the annual service fee for these borrowers.
• SBA 504 fees were reinstated for most non-manufacturer loans, introducing both an upfront guarantee fee and an annual service fee for FY 2026.
• SBA 504 Debt Refinance without Expansion loans now include a supplemental annual service fee when issued to non-manufacturer borrowers.

These changes apply to loans approved between October 1, 2025 and September 30, 2026, unless additional SBA program guidance is issued.

Quick summary.

• SBA guarantee fees are upfront program fees associated with SBA-guaranteed loans.
• SBA guarantee fees apply to SBA 7(a) and SBA 504 loans, but not to SBA Microloans.
• The fee is calculated as a percentage of the SBA-guaranteed portion of the loan, not the full loan amount.
• Fee amounts vary based on loan size, loan term, and SBA program type.
• New for FY 2026: qualifying manufacturer loans (NAICS sectors 31–33) under the SBA 504 program are eligible for full waivers of both the upfront guarantee fee and the annual service fee.
• The SBA publishes annual updates to lender fees, including the guarantee fee, for the following fiscal year.

The fee rates shown on this page reflect FY 2026 SBA guidance, effective for loans approved October 1, 2025 - September 30, 2026.

SBA 7(a) guarantee fees: Fiscal year 2026.

The SBA guarantee fee applies only to the SBA-guaranteed portion of the loan, not the total approved loan amount. Fees vary based on loan size and maturity and are established annually by the U.S. Small Business Administration.

SBA 7(a) guarantee fees: Loans with a maturity of 12 months or less.

SBA 7(a) guarantee fees: Loans with a maturity of more than 12 months.

Special SBA 7(a) programs.

SBA Express Loans (Veteran-Owned Businesses)

For SBA Express loans made to businesses owned and controlled by a veteran or the spouse of a veteran, the upfront SBA guarantee fee is 0%, in accordance with Section 7(a)(31)(G) of the Small Business Act.

Export Working Capital Program (EWCP) guarantee fees

EWCP loans have a separate upfront guarantee fee structure based on loan maturity.

SBA 504 guarantee Fees: Fiscal Year 2026.

SBA 504 loan fees are established annually by the U.S. Small Business Administration and apply only to the CDC (SBA-backed) portion of the loan. Fee treatment varies by borrower type and 504 program option.

SBA 504 fees: Loans approved October 1, 2025 through September 30, 2026.

Manufacturer loans (NAICS Sector 31-33)

For SBA 504 loans approved in FY 2026 to qualifying manufacturers, the SBA has waived both the upfront guarantee fee and the annual service fee.

This waiver applies to:

• Standard SBA 504 loans
• 504 Debt Refinance with Expansion
• 504 Debt Refinance without Expansion

All other SBA 504 loans (excluding Debt Refinance without Expansion)

For SBA 504 loans approved in FY 2026 that are not manufacturer loans and not part of the Debt Refinance Without Expansion program, the following fees apply:

SBA 504 Debt Refinance Without Expansion (Non-Manufacturer loans)

For SBA 504 loans approved in FY 2026 under the Debt Refinance Without Expansion program, and not made to manufacturers, the SBA applies an additional supplemental annual fee.

Important context for SBA 504 fees.

• SBA 504 fees apply only to the CDC portion of the loan, not the bank or borrower equity portion.
• The upfront guarantee fee is assessed once at loan funding.
• The annual service fee is assessed on the outstanding CDC loan balance over time.
• Fee waivers and supplemental fees are determined by borrower classification and program type, not by lender discretion.

How SBA guarantee fees are calculated.

SBA guarantee fees are calculated based on the portion of the loan guaranteed by the SBA, not the total approved loan amount. The exact fee depends on the SBA loan program, loan size, and loan maturity.

Step 1: Identify the SBA-guaranteed portion.

Each SBA loan program guarantees only a portion of the total loan amount. For example, SBA 7(a) loans are typically guaranteed at 75% or 85%, depending on loan size, while SBA 504 loans apply fees only to the CDC (SBA-backed) portion of the loan.

Step 2: Apply the applicable fee rate.

The SBA publishes guarantee fee rates annually by fiscal year. The appropriate rate is applied to the guaranteed portion of the loan based on:

• Loan program (7(a), 504, EWCP, or Express)
• Loan amount tier
• Loan maturity (12 months or less vs. more than 12 months)
• Borrower classification or program option, where applicable (such as manufacturer status for certain 504 loans)

Step 3: Distinguish upfront vs. ongoing fees.

• Upfront guarantee fees are assessed once, typically at loan approval or funding.
  Annual service fees, when applicable (such as for SBA 504 loans in FY 2026), are assessed on the outstanding guaranteed balance over time and are separate from the upfront guarantee fee.

Important calculation notes

• SBA guarantee fees are not calculated on the full loan amount.
• Fee rates are set by fiscal year, not by lender discretion.
• Certain SBA programs and borrower categories may qualify for fee waivers or modified fee structures based on SBA guidance.

For questions about how SBA guarantee fees apply to a specific loan structure, lenders typically rely on official guidance issued by the U.S. Small Business Administration.

Example SBA guarantee fee calculations (FY 2026).

Note: These examples are for illustration only. Actual fees depend on SBA program rules, the SBA-guaranteed portion, loan structure, and any applicable waivers or program options.

Example 1: SBA 7(a) loan under $150,000, (maturity more than 12 months).

Scenario

• Loan amount: $100,000
• SBA guarantee: 85%
• FY 2026 upfront fee rate: 2% of the guaranteed portion

Calculation

• Guaranteed portion: $100,000 × 85% = $85,000
• Upfront guarantee fee: $85,000 × 2% = $1,700

Example upfront guarantee fee: $1,700

Example 2: SBA 7(a) loan over $700,000 (maturity over 12 months).

Scenario

• Loan amount: $2,000,000
• SBA guarantee: 75%
• FY 2026 fee structure:
  
  • 3.5% of the guaranteed portion up to $1,000,000
  • 3.75% of the guaranteed portion over $1,000,000

Calculation

• Guaranteed portion: $2,000,000 × 75% = $1,500,000
• First $1,000,000 × 3.5% = $35,000
• Remaining $500,000 × 3.75% = $18,750

Example upfront guarantee fee: $53,750

Example 3: SBA 504 loan (manufacturer), FY 2026.

Scenario

• CDC (SBA-backed) portion: $1,200,000
• Borrower qualifies as a manufacturer (NAICS sectors 31–33)

FY 2026 treatment

• Upfront SBA guarantee fee: waived
• SBA annual service fee: waived

Example SBA fees:$0 upfront, $0 annual service fee

Important FY 2026 SBA guarantee fee rules for 7(a).

These rules affect how upfront guarantee fees are applied in certain scenarios under the SBA 7(a) program for FY 2026.

Multiple 7(a) loans approved within 90 days.

In many cases, if two or more SBA 7(a) loans (with maturities over 12 months) are approved for the same borrower (including affiliates) within 90 days, the SBA treats them as one combined loan for purposes of determining:

• The SBA guaranty percentage, and
• The applicable upfront guarantee fee tier

Note: This treatment may differ when one of the loans is a Working Capital Program (WCP) loan or an Export Working Capital Program (EWCP) loan.

Special treatment when WCP or EWCP loans are involved.

When one or more loans in the 90-day window is a WCP or EWCP loan, SBA rules may:

• Combine loan amounts to evaluate eligibility for certain fee relief (such as manufacturer-related relief), but
• Treat WCP/EWCP loans separately for upfront fee calculation, since those fees are based on maturity terms outlined for those programs

Extending a short-term 7(a) loan beyond 12 months.

If a short-term SBA 7(a) loan (12 months or less) is later extended to a maturity over 12 months, an additional upfront guarantee fee may be due based on the revised maturity.

Increasing a 7(a) loan after approval.

If an SBA 7(a) loan is increased, an additional upfront guarantee fee may apply to the increased amount. In FY 2026 guidance, the additional fee is generally determined by:

• The fee rules in effect at the time the loan was originally approved, and
• What the total upfront fee would have been if the increase had been part of the original loan amount (minus any upfront fee already paid)

Fee avoidance restrictions.

SBA rules prohibit structuring or splitting loans for the purpose of avoiding upfront guarantee fees. These rules apply even if loans are approved by different lenders.

Sources

• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 50 10 8 - Lender and Development Company Loan Programs. Last updated June 2025.
• U.S. Small Business Administration (SBA). SBA Information Notice - 7(a) Fees Effective October 1, 2025 for Fiscal Year 2026 and 90-Day Rule Clarification. Effective August 28, 2025.
• U.S. Small Business Administration (SBA). SBA Information Notice - 504 Fees for Fiscal Year 2026. Effective August 28, 2025.

SBA loan maximums are the highest loan amounts allowed under each U.S. Small Business Administration loan program. These limits are set by the SBA and vary by program type, loan purpose, and structure, helping ensure borrowers are not over-leveraged while providing access to affordable financing.

Current as of January 2026

SBA loan maximum amounts are established by the U.S. Small Business Administration and do not change on a regular schedule. As of this update, there have been no changes to SBA loan maximum limits for the 7(a), 504, or Microloan programs.

Quick summary: SBA loan limits at a glance.

• The maximum SBA 7(a) loan amount is $5 million.
• SBA 504 loans support projects with SBA-backed portions up to $5.5 million.
• SBA Microloans are capped at $50,000.
• Actual loan size depends on program structure and use of proceeds.
• Most businesses qualify for less than the maximum allowed amount.

SBA loan maximums by program.

SBA 7(a) loan program maximum loan amounts by loan type.

The SBA 7(a) loan program has a maximum loan amount of $5,000,000. This cap applies to the total loan amount, regardless of how funds are used, and represents the highest amount the SBA will support under the 7(a) program.

Within the SBA 7(a) program, the SBA offers several loan types designed for different financing needs. These types don’t change the overall program maximum, but some have lower loan size limits, or different SBA guarantee levels.

SBA 504 loan program maximum loan amounts by project type.

The SBA 504 loan program has a maximum loan amount of $5,500,000. This cap applies to the highest amount the SBA will support under the 504 program.

The nature of the specific 504 project influences what the loan limit will be for the SBA’s portion.

SBA Microloan program maximum loan amount.

The SBA offers a microloan program designed specifically to aid small businesses and non-profit childcare centers in need of small-scale financing. This program caters to businesses that require smaller amounts of funding than offered under the larger SBA loan programs.

Microloans are distributed to borrowers through intermediary lenders, and the SBA microloan loan limit is $50,000. The average loan awarded tends to be around $13,000.

How SBA loan maximums are set.

SBA loan maximums are established by the U.S. Small Business Administration and are designed to balance access to capital for small businesses with responsible risk management. These limits are not based on individual borrower qualifications, but on program-level policy decisions set at the federal level. The limits are defined in official SBA program guidance and Standard Operating Procedures (SOPs.) These limits apply nationwide and are not adjusted based on industry, location, or lender preference.

The maximums represent the upper limits allowed under each program, not the amount a business will qualify for. Actual loan size depends on factors such as cash flow, credit profile, use of proceeds, and lender underwriting standards.

Sources

The information in this article is based on official guidance and program rules published by the U.S. Small Business Administration and is intended to explain general SBA loan term limits and structural requirements.

• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 50 10 8 - Lender and Development Company Loan Programs. Last updated June 2025.
• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 52 00 B - Microloan Program. Last updated June 2018.‍
• U.S. Small Business Administration (SBA).SBA Standard Operating Procedure (SOP) 50 10, Appendix 13 - 7(a) Manufacturers' Access to Revolving Credit (MARC). Last updated October 2025.

Related Resources

• SBA Loan Interest Rates (updated monthly)
• SBA Loan Eligibility Requirements
• SBA Loan Terms and Duration

SBA loan terms refer to the maximum repayment periods allowed under SBA loan programs, which vary based on the loan type and how the funds are used. The SBA sets term limits to align repayment length with asset lifespan and borrower repayment ability, rather than allowing arbitrary loan durations. 

Current as of January 2026

SBA loan terms and duration are established by the U.S. Small Business Administration and do not change on a regular schedule. As of this update, there have been no changes to maximum SBA loan terms for the 7(a), 504, or Microloan programs.

Quick summary.

• SBA loan terms range from up to 6 years to up to 25 years
• Longer terms apply to real estate and major fixed assets
• Shorter terms apply to working capital and revolving needs
• Lenders must use the shortest appropriate term under SBA rules
• Term length affects monthly payment size, not just total cost

SBA loan term limits by program.

Based on SBA program guidance from the U.S. Small Business Administration.

SBA 7(a) loan program - term limits by type and use of funds.

Under the SBA 7(a) program, maximum loan terms depend on the program, loan structure, and how the loan proceeds are used.

Important notes on 7(a) program term limits:

• Maximum term length is determined by use of funds, not just loan program.
• When IRS useful life estimate is referenced, the asset’s estimated life must support the extended term.
• SBA lenders must generally use the shortest appropriate repayment term allowed under SBA guidelines.
• Construction or renovation periods are separate from loan amortization. When construction or renovation is included in the use of proceeds, the SBA allows an additional period reasonably necessary to complete that work to be added before amortization begins.

SBA 7(a) Standard loan term limits.

SBA 7(a) loan terms vary based on how funds are used rather than a single fixed maturity.

In general:

• Working capital and inventory loans are capped at up to 10 years.
• Equipment terms may extend up to 15 years if supported by IRS useful life estimates.
• Real estate-related uses may extend up to 25 years, with construction or renovation time added where applicable.
• Farm-related uses follow separate term limits for land, structures, and equipment.

See the table above for use-specific maximums.

SBA Express loan term limits.

SBA Express loans follow different maturity rules depending on whether they are structured as a term loan or a line of credit.

• Term loans follow the same maturity limits as Standard SBA 7(a) loans, based on use of funds, with maximum terms ranging up to 25 years for real estate-related uses.
• Lines of credit, whether revolving or non-revolving, have a maximum maturity of 10 years.

For revolving lines of credit:

• The revolving period is limited to up to 5 years
• During this time, funds may be drawn, repaid, and re-borrowed
• After the revolving period ends, any outstanding balance is converted to a non-revolving loan and must be fully repaid within the 10-year total maturity limit

For non-revolving lines of credit:

• Funds may be drawn up to the approved limit
• Re-borrowing is not permitted
• The line must be fully repaid within the 10-year maturity limit

SBA CAPLines term limits.

SBA CAPLines are designed for short-term and cyclical financing needs, and have program-specific maximum maturities, depending on the type of CAPLine:

• Builder’s CAPLine loans are capped at up to 5 years
• Working Capital, Contract, and Seasonal CAPLines may extend up to 10 years

These maturity limits define the maximum legal repayment period for each CAPLine program.

Seasonal CAPLine Clean-Up requirement.

Seasonal CAPLines include a mandatory clean-up period each season. The borrower must reduce the outstanding balance to $0 for a minimum of 30 consecutive days. This demonstrates that the business is not dependent on borrowed funds year-round, but instead uses the CAPLine to support seasonal operating cycles.

CAPLines exit strategy requirement.

All SBA CAPLines require a defined exit strategy. The final advance under the CAPLine must occur far enough in advance of the maturity date. This ensures any assets acquired or financed through the CAPLine can be converted back into cash. This converted cash must be sufficient to fully repay the loan balance by maturity. 

SBA Export Express term limits.

SBA Export Express loans have different maturity limits depending on how the loan is structured.

• When structured as a term loan, Export Express loans follow the same maturity rules as Standard SBA 7(a) loans, with maximum terms based on use of proceeds and extending up to 25 years for eligible real estate uses.
• When structured as a line of credit, the maximum maturity is 7 years, regardless of whether the line is revolving or non-revolving.

For Export Express lines of credit:

• Funds may be drawn up to the approved limit
• Revolving and non-revolving structures are permitted
• The full balance must be repaid within the 7-year maturity limit

International Trade Finance term limits.

International Trade Finance loans follow the same maturity rules as Standard SBA 7(a) loans.

• Maximum loan terms are determined by use of proceeds
• Real estate-related uses may extend up to 25 years
• Equipment and working capital uses follow standard SBA 7(a) limits

The International Trade designation affects eligibility and purpose, but does not alter maximum maturity limits. 

Export Working Capital Program (EWCP) loan term limits.

Export Working Capital Program (EWCP) loans are designed for short-term, transaction-based export financing and have a maximum allowable maturity of 36 months.

Actual loan terms are often shorter and depend on the structure of the EWCP loan.

Transaction-specific EWCP loans.

When an EWCP loan is structured to support a single export transaction:

• The loan term may extend up to 36 months
• Any maturity longer than 12 months must be supported by lender documentation and justification to the SBA
• The term is tied to the lifecycle of the underlying export transaction

Transaction-based EWCP lines of credit.

When structured as a transaction-based line of credit:

• The loan term is typically up to 12 months
• The line may be approved for up to 36 months through annual renewals
• Each renewal is treated as a new loan, subject to new SBA guarantee fees

Asset-based (ABL) EWCP loans.

Asset-based EWCP loans follow a similar renewal structure:

• Typically issued with a 12-month term
• May be renewed annually for up to 36 months total
• Each renewal is treated as a new loan and requires a new SBA guarantee

Important notes on EWCP maturity:

• The 36-month limit represents the maximum allowable maturity, not a guaranteed loan length.
• EWCP loans are structured as self-liquidating, short-term financing tools
• EWCP renewals are treated as new loans. Each renewal is subject to a new SBA guarantee fee and independent approval.

Manufacturers’ Access to Revolving Credit (MARC) loan term limits.

MARC loans follow different maturity rules depending on whether they are structured as a term loan, or a revolving loan.

• Term loans have a maximum maturity of 10 years. 
• Revolving loans have a maximum maturity of 20 years.

For revolving loans:

• The revolving period is limited to up to 10 years.
• During this time, funds may be drawn, repaid, and re-borrowed.
• After the revolving period ends, any outstanding balance is converted to a non-revolving loan and must be fully repaid within the 20-year total maturity limit.

SBA 504 loan program - term limits by type and use of funds.

SBA 504 loans provide long-term, fixed-rate financing for major fixed assets. Term lengths are standardized at 10, 20, or 25 years, depending on the project and asset type.

• Fixed-rate, asset-based financing
• Term tied directly to asset class:
  
  • 10 years - equipment (but could qualify for 20-25 years depending on useful life)
  • 20-25 years - real estate
• When the 504 loan is used for mixed assets, such as real estate and equipment, the term of the asset that the majority of the funds are used for will apply.

SBA Microloan loan program - term limits.

SBA Microloans are capped at up to 10 years, regardless of use of funds, reflecting their role as small-dollar, short-term financing.

What determines the length of an SBA loan?

SBA loan terms are determined by four primary factors:

1. SBA loan program rules
2. Use of proceeds
3. Asset type and useful life
4. Structural requirements defined by the SBA

Loan length is not determined by borrower preference alone, and longer terms are not automatically available for all uses.

What longer vs. shorter SBA loan terms mean in practice

• Longer terms = lower monthly payments, longer payment horizon
• Shorter terms = higher monthly payments, faster payoff
• Term length does not change SBA eligibility rules

What SBA loan length does not tell you.

An SBA loan’s maximum allowable term does not:

• Guarantee approval for that term length
• Indicate interest rate or total cost
• Replace lender underwriting requirements
• Apply uniformly across all loan structures

Why SBA loan length rules are often misunderstood.

SBA loan term rules are frequently misunderstood because:

• Maximum maturities vary by use of funds, not just program
• Some loans include draw periods or construction phases
• Certain programs rely on annual renewals, not single long terms
• Many summaries oversimplify SBA guidance

In summary, SBA loan lengths vary widely by program and structure, with maximum terms determined primarily by use of proceeds, asset type, and SBA program rules rather than borrower preference.

Sources

The information in this article is based on official guidance and program rules published by the U.S. Small Business Administration and is intended to explain general SBA loan term limits and structural requirements.

• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 50 10 8 - Lender and Development Company Loan Programs. Last updated June 2025.
• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 52 00 B - Microloan Program. Last updated June 2018.
• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 50 10, Appendix 13 - 7(a) Manufacturers' Access to Revolving Credit (MARC). Last updated October 2025.

Related Resources

• SBA Loan Interest Rates (updated monthly)
• SBA Loan Eligibility Requirements
• SBA Loan Fees

‍The SBA does not set minimum credit score requirements for SBA loans.‍

Instead, the U.S. Small Business Administration requires SBA-approved lenders to evaluate a borrower’s overall creditworthiness and financial stability using prudent commercial lending standards. Credit score is one factor in that evaluation, but it is not the only factor. Acceptable credit profiles may vary by lender and SBA loan program.

Because lenders retain responsibility for underwriting SBA-backed loans, different lenders may weigh credit history differently based on risk tolerance, loan structure, and the borrower’s broader financial profile.

Quick Summary: SBA loans and credit scores.

• The SBA does not publish minimum credit score cutoffs.
• SBA lenders assess credit as part of a broader financial review.
• Both personal and business credit history may be considered.
• Cash flow, debt obligations, and business stability often matter as much as credit.
• Credit expectations vary by lender and SBA loan program.

Why credit still matters for SBA loans.

SBA loans are partially guaranteed by the federal government, but lenders still carry risk and are responsible for repayment outcomes. As part of standard underwriting, lenders review a borrower’s credit history to better understand financial behavior and repayment reliability.

Credit reports help lenders evaluate factors such as:

• Payment history and consistency
• Existing debt obligations
• Credit utilization and account management
• Patterns that may signal financial stress or stability

A stronger credit profile can help reinforce an application, but weaker credit does not automatically disqualify a borrower if other aspects of the business are strong.

How SBA lenders use credit scores in practice.

While the SBA does not establish minimum credit score requirements, many SBA-approved lenders apply internal credit benchmarks or evaluation standards as part of their standard underwriting process. These benchmarks are set by individual lenders based on risk management policies and are not dictated by the SBA. As a result, acceptable credit profiles may vary from one lender to another.

SBA lenders typically also evaluate credit in context.

That means credit history is reviewed alongside:

• Business cash flow and ability to service debt
• Time in business and operating stability
• Existing liabilities and obligations
• Management experience and ownership structure
• Collateral, when applicable

In some cases, strong cash flow or collateral may help offset a less-established credit profile. In others, credit concerns may prompt a lender to request additional documentation or structure the loan differently.

Does credit evaluation differ by SBA loan program?

While the SBA does not assign credit score requirements to specific loan programs, lenders may apply different underwriting approaches based on the loan type.

For example:

• SBA 7(a) loans are commonly evaluated based on overall repayment ability, including cash flow, credit history, and business fundamentals.
• SBA 504 loans may involve additional scrutiny due to their real estate focus and lien structure.
• SBA Microloans are often administered by nonprofit intermediaries that emphasize business readiness, planning, and local economic impact alongside credit considerations.

These differences reflect lender practices, not SBA-imposed credit thresholds.

What lenders look for beyond credit scores.

Credit is only one piece of an SBA loan application. Lenders often review a combination of financial and operational factors, including:

• Overall credit profile and payment history
• Current cash flow and projected income
• Existing business and personal debt
• Financial statement and tax returns
• Owner equity invested in the business
• Business plan and growth outlook
• Collateral, when required by the program

A well-prepared application that demonstrates financial stability can help lenders feel confident even when credit history is not perfect.

Strengthening your credit profile before applying.

If you’re preparing to apply for an SBA loan, improving your credit profile may strengthen your application. Common preparation steps include:

• Reviewing personal and business credit reports for accuracy
• Addressing outstanding delinquencies or past-due accounts
• Reducing outstanding debt when possible
• Avoiding unnecessary new credit inquiries
• Maintaining consistent, on-time payments over time

These actions support a stronger overall financial picture rather than targeting a specific score.

Can you still qualify with lower or limited credit history?

Some borrowers with limited or imperfect credit histories may still qualify for SBA financing, depending on the lender and program. Lenders may consider additional strengths such as:

• Consistent business cash flow
• Valuable collateral or equity contribution
• Several years of operating history
• Strong management experience
• Clear financial documentation and projections

Because underwriting standards vary, outcomes can differ from lender to lender.

Credit is one part of the SBA loan equation.

When it comes to SBA loans, credit score alone does not determine eligibility. Lenders assess credit as part of a broader review of financial health, business stability, and repayment capacity.

Understanding how lenders evaluate credit—and preparing your full financial profile accordingly—can help you approach the SBA loan process with clearer expectations and stronger readiness.

Sources

• U.S. Small Business Administration (SBA). SBA Standard Operating Procedure (SOP) 50 10 — Lender and Development Company Loan Programs. Version 8. Effective June 2025.
• U.S. Small Business Administration (SBA). SBA Procedural Notice 5000-875701—Sunset of SBSS Score for 7(a) Small Loans. Effective March 1, 2026.

SBA 504 and SBA 7(a) loans are designed for different business needs. Choosing between them depends primarily on how the funds will be used, the type of asset being financed, and whether flexibility or long-term structure is the priority.

This guide compares SBA 504 and SBA 7(a) loans through a decision-focused lens, highlighting the practical differences that help determine which program aligns with a specific project or business goal.

SBA 504 vs SBA 7(a): Key differences at a glance.

‍

How to decide between SBA 504 and SBA 7(a) loan programs.

• If your primary goal is purchasing, constructing, or renovating owner-occupied commercial real estate, then SBA 504 financing is commonly used for asset-based projects tied to a specific location.
• If your financing needs include working capital, inventory, or multiple business purposes, then SBA 7(a) loans are often considered due to their broader flexibility.
• If your project centers on long-term fixed assets like property, equipment or machinery, and predictable repayment is a priority, then SBA 504 may align better with that structure.
• If your business needs financing that can support both real estate and operational expenses under one loan, then SBA 7(a) is typically structured to allow that flexibility.‍
• If the project does not involve long-term assets or real estate, then neither SBA 504 nor SBA 7(a) may be the most efficient option.

These scenarios focus on common uses of each SBA program. Final eligibility, terms, and approval depend on SBA rules and lender-specific criteria.

What this comparison does not cover.

While this comparison is intended to help explain structural and use-of-funds differences between the SBA 504 and SBA 7(a) loans, it does not:

• Determine whether your business qualifies for either program
• Predict approval likelihood or loan terms
• Establish credit score, revenue, or collateral requirements
• Compare interest rates, fees, or total borrowing costs
• Replace lender or SBA underwriting review

Final eligibility and loan approval depend on SBA program rules, lender underwriting standards, and project-specific factors that are evaluated outside of this comparison.

Eligibility considerations.

Both SBA 504 and SBA 7(a) loans follow SBA-wide eligibility standards, with additional program-specific requirements based on how the funds are used and how the project is structured.

This comparison does not determine eligibility. A full explanation of SBA eligibility rules, including ownership requirements, disqualifying factors, and lender overlays, is covered in our complete SBA loan requirements guide.

SBA Loan Requirements and Eligibility Guide

Next steps to explore.

Based on how SBA 504 and SBA 7(a) loans differ, the following resources provide deeper detail on each option and the requirements involved:

Learn more about SBA 504 loans.

Covers how the program works, eligible uses of funds, project structure, and typical use cases.

https://www.lendio.com/blog/sba-504-loans/

Learn more about SBA 7(a) loans

Explains flexible uses of funds, loan structures, and scenarios where SBA 7(a) financing is commonly used.

https://www.lendio.com/blog/sba-7a-loan/

Review SBA loan eligibility requirements.

Provides a complete breakdown of SBA-wide eligibility rules and common disqualifiers.

https://www.lendio.com/blog/sba-loan-requirements/

Summary: SBA 504 vs SBA 7(a).

SBA 504 and SBA 7(a) loans are designed to support different types of business financing needs. SBA 504 loans are typically used for long-term, asset-based projects such as owner-occupied commercial real estate, while SBA 7(a) loans offer broader flexibility for a wider range of business purposes.

Key Takeaways

• SBA 504 loans are commonly used for fixed-asset investments tied to a specific location and long-term expansion projects.
• SBA 7(a) loans are generally more flexible and can support working capital, acquisitions, and mixed-use financing needs.
• When real estate is financed under either program, owner-occupancy requirements apply under SBA rules.
• Eligibility, loan terms, and approval outcomes depend on SBA guidelines and lender-specific underwriting, not program type alone.

An SBA 504 loan is a government-backed financing program designed to help small businesses purchase or improve owner-occupied commercial real estate and long-term equipment through a fixed-rate, long-term structure.

The program is administered by the U.S. Small Business Administration (SBA) and funded through a partnership between a traditional lender, a Certified Development Company (CDC), and the borrower. SBA 504 loans are specifically intended to support long-term business growth, job creation, and local economic development. They’re most ideal for small businesses in the growth stage, looking to expand operations long-term.

When to use an SBA 504 loan.

SBA 504 loans exist to make large, long-term investments more affordable for qualifying small businesses, particularly when purchasing real estate or high-cost equipment that will be used for many years.

In many cases, these loans are used when a small business:

• Wants predictable monthly payments through fixed interest rates
• Is planning a long-term expansion, not a short-term cash flow need
• Needs financing for assets that are central to operations, such as buildings or machinery

What SBA 504 loans can be used for.

SBA 504 loans are designed for specific, asset-based purposes. According to SBA 504 program guidelines, funds may be used for:

Real estate acquisition and development

• Purchasing owner-occupied commercial real estate
• Purchasing one or more existing buildings
• Construction new commercial buildings
• Expanding, converting, or renovating existing facilities
• Acquiring land as part of an eligible project (not for speculation or future resale)

Site improvements

• Grading and preparing land
• Streets, access roads, and parking lots
• Landscaping and drainage
• Certain community improvements (such as curbs or sidewalks), generally limited to a small portion of total project costs
• Energy-efficient or renewable energy improvements or equipment, when these improvements support the project facility, can be documented through an independent audit or report, and are not intended for energy resale.

Long-term equipment and fixed assets

• Purchasing and installing fixed equipment with a useful life of at least 10 years
• Equipment must generally be:
  
  • Permanently installed or affixed
  • Used at a specific, fixed location
• In some cases, short-term financing for equipment, furniture, or furnishings may be permitted only if:
  
  • The items are essential to the project
  • They represent a minor portion of the total project cost

Project-related soft costs (Limited)

SBA 504 loan proceeds may include certain professional or administrative costs when they are:

• Directly attributable to the eligible project
• Necessary to complete the transaction

Examples may include appraisals, surveys, and title- related costs, or zoning/ permitting expenses.

Interim or Bridge financing (Limited)

SBA 504 loans may be used to repay short-term bridge or interim financing (typically three years or less), when that financing was used to cover eligible project costs prior to permanent funding through the 504 program.

What SBA 504 loans cannot be used for.

Because SBA 504 loans are intended to support long-term capital investment, they come with strict limitations on how borrowers can use the proceeds. These restrictions are especially important in distinguishing SBA 504 loans from more flexible SBA loan programs.

Here’s what SBA 504 loans cannot be used for:

Working capital and operating expenses

• Day-to-day operating expenses
• Payroll, rent, utilities, or marketing costs
• Inventory, supplies, or raw materials
• Short-term cash flow needs

Debt refinancing (with some exceptions)

• Refinancing existing business debt not tied to eligible fixed assets
• Refinancing for the purpose of freeing up working capital
• Revolving or short-term debt structures

Investment or passive real estate

• Rental or investment properties
• Property not primarily occupied by the operating business
• Speculative real estate purchases

Intangible assets

• Business goodwill
• Software or cloud-based services
• Intellectual property

Land speculation or excess land

• Purchasing vacant land for future development
• Acquiring land in excess of current operational needs
• Land intended for resale or lease to third parties

Ownership interests (with some exceptions)

• Purchasing stock or ownership interests unless the transaction is structured to acquire eligible real estate or fixed assets
• Any portion of a transaction that is attributed to goodwill or excess value must be financed separately

Clarifying SBA 504 vs. SBA 7(a) uses of proceeds.

Many SBA rules around use of funds vary by program. SBA 504 loans do not allow working capital, inventory purchases, or operating expense financing, even though these uses are often permitted under SBA 7(a) loans.

This distinction matters because:

• SBA 504 loans are asset-focused and fixed-structure by design
• SBA 7(a) loans are more flexible and can support broader business needs

While you can use SBA 7(a) loans for several allowed uses for SBA 504 funds, the reverse isn’t usually true. Understanding this boundary helps ensure you pursue the right SBA program based on the purpose of financing, not just loan size or rate.

Learn more about SBA 504 loans vs. SBA 7(a) loans.

The SBA 504 program is structured to promote:

• Long-term business stability
• Job creation
• Owner-occupied property ownership
• Capital investments with lasting economic impact

Because of this mission, SBA 504 loans are intentionally not designed for short-term liquidity or operational flexibility. If your business is seeking flexible capital for day-to-day needs, you might want to consider alternative SBA programs or non-SBA financing options.

SBA 504 loan eligibility: High-level requirements.

SBA 504 loans are designed for established small businesses making long-term, asset-based investments. While exact approval criteria will also vary by lender and Certified Development Companies (CDCs), the SBA has several program-specific requirements that borrowers must meet.

This section outlines the eligibility considerations unique to SBA 504 loans, not the full SBA program eligibility criteria.

Program-specific eligibility criteria for SBA 504 loans.

Owner-occupancy requirement

SBA 504 loans are limited to owner-occupied properties.

• For existing buildings, the operating business must generally occupy at least 51% of the property.
• For new construction, required owner occupancy is typically 60%, with the expectation that owners will occupy 80% within 10 years.

This requirement ensures 504 financing supports active business operations rather than passive real estate investment.

Eligible project type

SBA 504 loans are reserved for long-term, fixed-asset projects, such as:

• Purchasing or constructing owner-occupied commercial real estate
• Expanding or renovating existing facilities
• Acquiring fixed equipment with a long useful life

Projects focused on working capital, short-term expenses, or speculative investment do not meet SBA program requirements.

Business stage and stability

SBA 504 loans are most commonly used by growth-stage businesses that:

• Have established operations
• Are planning long-term expansion
• Can support extended repayment terms

While newer businesses are not automatically excluded, additional equity or documentation may be required depending on project structure and lender review.

Financial review and repayment ability

Rather than relying on a single qualification metric, SBA 504 loans are typically evaluated using a holistic financial review, which commonly considers:

• Business financial performance and cash flow trends
• Personal and business credit history
• The long-term viability of the project being financed

Exact requirements vary by lender and CDC.

Eligibility rules that apply to all SBA loans.

In addition to the program-specific considerations above, SBA 504 borrowers must also meet the SBA’s general eligibility requirements, which address factors such ass:

• Business type and lawful operation
• Ownership and guarantor standards
• Use of loan proceeds
• Ability to obtain credit elsewhere on reasonable terms

Because these rules apply across multiple SBA programs, they are covered in detail in our comprehensive guide to SBA loan eligibility requirements.

When an SBA 504 loan may not be a fit.

An SBA 504 loan may not be appropriate if a business:

• Needs working capital or flexible funding
• Plans to purchase investment or rental property
• Does not meet owner-occupancy requirements
• Is seeking short-term or revolving credit

In these cases, other SBA loan programs or financing options may better align with the business’ needs.

SBA 504 economic development eligibility requirements (program-level).

In addition to standard SBA eligibility rules, all SBA 504 projects must meet at least one SBA-defined economic development objective. These requirements are specific to the 504 program and are evaluated at the project level, typically by the Certified Development Company (CDC), rather than solely by the borrower. 

This section explains how SBA 504 projects satisfy those program requirements at a high level.

Economic Development Objectives for SBA 504 projects.

Under SBA regulations, a 504 project must achieve at least one of the following economic development objectives to be eligible.

Job creation or job retention

Most SBA 504 loans qualify by demonstrating job creation or job retention.

• Projects must generally support the creation or retention of at least one job opportunity per $90,000 of SBA-backed debenture.
• For small manufacturers and energy-related projects, the threshold is higher.
• Job retention may be used when a CDC can reasonably demonstrate that jobs would be lost if the project were not completed

Job opportunities do not need to be located directly at the project facility, however the majority of jobs must typically benefit the local community where the project is located.

Alternative Economic Development or Public Policy goals

If a project does not meet job creation or retention benchmarks, it may still qualify by advancing other SBA-approved public policy or community development goals. 

Examples include projects that support:

• Community development initiatives
• Rural development
• Business district revitalization
• Expansion in underserved or special geographic areas
• Certain energy efficiency or sustainability objectives

Energy Public Policy projects (special category)

Some SBA 504 projects qualify under energy-related public policy goals, which follow additional SBA guidance.

At a high level, eligible energy public policy projects may include those that:

• Reduce existing energy consumption by at least 10%
• Generate more than 15% of the energy used at the project facility from renewable resources
• Incorporate sustainable design elements that reduce environmental impact

These projects must be supported by third-party documentation, such as an energy audit or engineering report, verifying projected energy usage and savings.

Because these requirements are technical and project-specific, they are typically evaluated and documented by the CDC during the application process.

How Economic Development requirements affect borrowers.

For most borrowers, economic development eligibility is handled primarily by the CDC, not the business owner, but it’s helpful to know what the CDC will be looking for.

Borrowers will generally be responsible for:

• Providing project details
• Sharing employment estimates or operational impact
• Supporting documentation requested during underwriting

The CDC will use this information to ensure the project aligns with SBA economic development objectives and complies with program requirements.

How SBA 504 loans work (Step-by-Step).

SBA 504 loans follow a structured process because they involve multiple parties. These include a traditional lender, a Certified Development Company (CDC), and the SBA. Exact timelines and requirements vary by lender and project type, but the process generally looks like this.

Step 1: Confirm your project is eligible.

Start by confirming your planned purchase or improvement fits SBA 504 guidelines. This is most commonly owner-occupied commercial real estate or long-term fixed equipment. The SBA 504 program is not intended for working capital, inventory, or investment property.

Step 2: Estimate your total project cost and financing structure.

Next, outline your full project budget (purchase price, construction costs, renovations, equipment, eligible soft costs). SBA 504 projects are financed through a shared structure between the lender and CDC, plus a borrower contribution.

Step 3: Choose a Certified Development Company (CDC).

SBA 504 loans are typically originated through a participating bank or lender and a CDC, which supports the SBA-backed portion of the financing. The CDC also helps document project eligibility and economic development objectives. You can find a CDC in your state via the SBA’s list of certified development companies, and they will typically discuss your project with you and help you find a participating bank or lender. You can also use the SBA’s Lender Match tool to find SBA-approved lenders participating in the 504 program.

Here is a guide to typical 504 financing structures based on business type or project purpose.

Step 4: Prepare your application package and documentation.

You’ll typically provide business and project documentation used for underwriting and SBA program review, such as:

• Business financial statements and tax returns
• A current debt schedule
• Information about owners and guarantors
• Project details (property, equipment specs, construction plans, budgets)

Exact documentation requirements will vary by lender, CDC, and transaction complexity. You can visit the SBA's 504 Authorization File Library to find the documents you will need for your loan package.

Step 5: Underwriting and eligibility review.

The lender and CDC will evaluate your application package to confirm:

• The business and project meet SBA 504 requirements
• Repayment ability and overall creditworthiness
• Project structure and collateral considerations
• Required program elements (such as owner occupancy and economic development objectives)

Step 6: SBA authorization and loan approval.

After underwriting, the CDC submits the required documentation for SBA authorization. Once approved, the financing moves towards closing.

Step 7: Close the loan and disburse funds.

At closing, the project is funded according to the approved structure. For construction or renovation projects, funds may be disbursed in phases based on project milestones.

Step 8: Begin repayment and meet ongoing reporting requirements.

After disbursement, repayment begins under the agreed term and structure. For SBA 504 loans, CDCs may also track program-related outcomes (such as job impacts) as part of SBA reporting requirements.

Pros and Cons of SBA 504 Loans.

SBA 504 loans offer meaningful advantages for certain long-term business projects, but they also come with limitations. Understanding both sides can help businesses determine whether this program aligns with their financing goals.

Pros of SBA 504 loans

• Designed for long-term asset purchases - 504 loans are specifically structured to support major investments, making them ideal for expansion projects with lasting value.
• Fixed interest rates - The SBA-backed portion of the loan is commonly offered at a fixed rate, which helps provide predictable monthly payments over the life of the loan.
• Long repayment terms - Depending on the asset being financed, SBA 504 loans feature extended repayment periods, commonly from 10-25 years, which can help spread costs over time for large purchases.
• Lower down payment requirements- In many cases, 504 loans require less upfront equity compared to traditional commercial real estate financing, although specific contributions will vary by project and borrower.
• Supports economic development goals - The program is designed to encourage job creation, community growth, and long-term business investment.

Cons of SBA 504 loans

• Limited use of proceeds- SBA 504 loans cannot be used for working capital, inventory, or most short-term business expenses.
• More complex loan structure - Because SBA 504 loans involve multiple parties, including a traditional lender and a CDC, the process can be more involved than single-lender loans.
• Longer approval timelines - Layered review and authorization processes often result in longer timeframes compared to non-SBA or conventional financing options.
• Owner-occupancy requirements - Only owner-occupied properties qualify, which excludes investment or rental real estate projects.
• Not ideal for early-stage or short-term needs - Businesses seeking quick access to capital or flexible funding may need to explore other loan programs.

How to decide whether an SBA 504 loan fits your project.

• If your business is purchasing or constructing owner-occupied commercial real estate, then an SBA 504 loan is commonly used to finance long-term property investments tied directly to business operations.
• If your business is expanding, converting, or renovating an existing facility it actively operates from, then SBA 504 financing may be relevant for the fixed-asset portion of that project.
• If your business is purchasing long-term, fixed equipment that will be installed at a specific location and used over many years, then an SBA 504 loan may help finance those assets.
• If your project involves energy-efficiency upgrades or on-site renewable energy improvements that can be documented through an energy audit or engineering report, then the project may qualify under SBA 504 energy public policy goals.
• If your business is planning a large, long-term investment and prefers predictable payments through fixed interest rates, then SBA 504 financing may align with that goal.
• If your business needs working capital, inventory funding, or short-term operational support, then an SBA 504 loan is typically not a fit, since the program is designed for fixed assets rather than flexible business expenses.
• If your project involves investment or rental property that will not be primarily occupied by your operating business, then SBA 504 financing is generally not appropriate.

Bottom line: is an SBA 504 loan right for your business?

SBA 504 loans are a specialized financing program designed to support long-term, fixed-asset investments such as owner-occupied commercial real estate and permanent equipment. By combining a traditional lender, a Certified Development Company (CDC), and SBA-backed financing, the program helps eligible small businesses fund large projects tied to expansion, job creation, and economic development.

Because SBA 504 loans are purpose-built for asset-based growth, they are best evaluated based on project type, business stage, and long-term operational goals, rather than short-term funding needs.

Key Takeaways.

• SBA 504 loans are designed for fixed assets, not working capital. They are commonly used for owner-occupied real estate, construction, renovations, and long-term equipment.
  
• Eligibility is project-driven, meaning both the business and the proposed project must meet SBA program guidelines, including owner-occupancy and economic development objectives.
  
• The loan structure is unique, involving a lender, a CDC, and SBA-backed financing, which can provide long repayment terms and predictable payments for qualifying projects.
  
• SBA 504 loans differ from SBA 7(a) loans, particularly in use of proceeds, flexibility, and structure. Choosing the right program depends on how the funds will be used.
  
• SBA 504 financing is typically best suited for growth-stage businesses planning long-term investments, rather than early-stage companies or businesses seeking short-term or flexible capital.

Businesses considering SBA financing often compare multiple loan programs before moving forward. Understanding how each option works—and when it applies—can help ensure the chosen financing aligns with long-term business goals.

Related resources.

Learn more about SBA loans:

• SBA Loan Eligibility Requirements
  
• SBA Loan Interest Rates Explained
  
• SBA Guarantee Fees Guide

Compare SBA financing options:

• SBA 7(a) vs SBA 504 Loans

SBA loans are a flexible, affordable funding option for small businesses, but they often take weeks or months to process. This is largely due to an extensive application process, strict requirements, and a high demand for these loans.

While you’re waiting for more permanent funding to come through, you might want to consider a business bridge loan. These are a fast, temporary solution that keeps business plans moving during the wait.

What is a bridge loan?

A business bridge loan is a short-term funding solution designed to help fill the gap while you wait for long-term, reliable financing to arrive. These loans provide more immediate cash flow for urgent expenses, like rent, payroll, or commercial real estate.

The trade-off for quick funding is that they typically come with high interest rates and shorter repayment terms—often no more than a year. This makes them better as a temporary solution, as opposed to SBA loans, which usually have more favorable terms and rates.

Taking out a bridge loan doesn’t necessarily disqualify you from SBA funding. However, government-backed loan programs often look at your overall financial situation when deciding whether to approve your application. This includes your debt-to-income (DTI) and debt-service coverage ratio (DSCR)—which indicates your ability to repay.

Before applying for a short-term business financing solution, make sure it won’t prevent you from securing a more permanent financing solution like an SBA 7(a) or 504 loan.

Why businesses use bridge financing.

Businesses use bridge loans—sometimes called gap financing—to handle short-term or pressing cash flow needs. They’re a stopgap until a long-term solution, like an SBA loan, comes through.

Bridge loans can help by:

• Covering payroll or operating expenses while waiting for SBA loan approval
• Purchasing inventory or equipment tied to time-sensitive opportunities
• Locking in contracts before SBA funds are ready
• Purchasing or constructing commercial property
• Providing working capital in the midst of a major deal or sale (like an acquisition)

How a bridge loan helps while SBA funds are pending.

SBA loans exist to help small businesses get the funding they need to launch, grow, and thrive. Over the past handful of years, the SBA has provided loans (and grants) to 13 million small businesses.

But SBA loans can take time to process—sometimes around 90 days—and you might not be able to wait. While your application is pending, a business bridge loan can help with:

• Fast approvals and quick funding (often same-day or next-day funding)
• Flexible repayment structures (depending on lender)
• Ability to preserve momentum instead of pausing commercial operations
• Funds to secure an immediate opportunity

Key differences between bridge loans and SBA loans.

Business bridge loans and SBA loans are both designed to help fund your business, but here's how they differ:

• Unlike SBA loans, bridge loans are a short-term business financing solution
• Bridge loans are usually more expensive, with higher interest rates and other lender fees
• SBA loan approval can take weeks or months, whereas bridge loans may be funded within a week or less
• Bridge loans often have short repayment timelines of about a year (up to three years when used for real estate) vs. longer SBA terms (10 to 25 years)
• Bridge loans don’t come with a federal guarantee, so lenders assess risk differently (and may charge more)

Know that both bridge loans and SBA loans can be used for an array of business needs, including:

• Short-term working capital (and long-term for SBA loans)
• Financing equipment, inventory, machinery, etc.
• Purchasing property

Bridge loans may be either secured or unsecured. Some lenders require collateral—like property in the case of real estate acquisitions—in exchange for funds. SBA loan programs vary, but loans above $50,000 may require collateral or a personal guaranty.

What lenders look for in bridge loan applicants.

With any form of business financing, lenders want to know you can repay the amount borrowed on schedule. Requirements vary, but here’s what lenders typically look for in an applicant:

• Strong cash flow and the ability to repay quickly
• Clear evidence that an SBA loan is already in progress (especially if you’re planning on using the SBA loan to refinance current business debts)
• Clear financial documentation and up-to-date bank statements
• Good or excellent credit (aim for 740+)
• DSCR of at least 1.25 or DTI below 50%
• Sufficient collateral (like real estate or other assets)

If you’re using the bridge loan for real estate, lenders will also generally review the loan-to-value ratio (LTV). Most lenders only let you borrow up to 80% of the property’s value.

When a bridge loan makes sense.

A bridge loan might make sense for your business if:

• You have a time-sensitive opportunity (like a great real estate deal)
• You need to stabilize cash flow during the waiting period
• You’re confident the SBA loan approval is on track
• You’re sure of your ability to repay the loan in a short period (or else have the means to refinance it)
• The benefits of the loan outweigh the costs
• You have the required collateral

Note: If your business needs help recovering from a declared disaster, an SBA disaster loan may help.

Bridge loans: A possible short-term solution.

Bridge loans help small business owners move forward instead of waiting on lengthy SBA timelines. But they aren’t without risk. As a form of short-term business financing, they generally must be repaid within a few months or years. They also tend to come with higher interest rates and other fees that SBA loans don’t have.

Before choosing a bridge loan, weigh the benefits—like more immediate funds—against the costs. It helps to have a clear plan and exit strategy so you can make the most out of the loan while safeguarding yourself (and your business) against future complications.

Thinking about your business financing options? Check out Lendio’s marketplace today.

Restaurants operate on thin margins, requiring many sales to generate healthy profits. They also have higher startup costs than some other industries, and it’s not uncommon to need funds both early on in the business, as well as later on.

While SBA funding is a common choice, it’s not the only game in town. In fact, some restaurants need the flexibility, speed, and approval odds that are available through other options. Learn about the most common restaurant funding options available, as well as how to know which is right for you.

Where SBA loans fit into restaurant financing.

The Small Business Administration (SBA) is often the first option restaurant owners think of when looking for long-term financing. The SBA 7(a) and 504 loans can offer up to $5 million and have lower rates than other types of funding. Because SBA funds can be used for equipment costs and payroll, they may seem like a natural fit for the challenges restaurants face in any economy.

However, getting approved for an SBA loan can be a long process, with slower approval times and rigorous documentation requirements. The large collateral terms may make them out of reach for new or small eateries.

Even if the SBA loan is the ideal pick, the timeline may force restaurants to look elsewhere to cover them while the loan is being approved. If a fryer breaks, for example, it’s not reasonable to replace it in 30 to 60 days, which is how long a traditional SBA loan can take from application to loan disbursement.  

Restaurants must keep their doors open and welcome new customers, so they’ll need the money faster than this. That’s why it’s good to know the other loan types available to owners with urgent cash needs or who want to take advantage of a quick-turn growth opportunity.

Traditional bank loans.

Starting a restaurant is a big undertaking, but if the owner already has a relationship with a bank, they may want to start there. Restaurants aren’t limited to just those banks they know, however, and can search around to find the right lender to meet their needs.

Advantages of traditional bank funding include competitive interest rates and large loan limits, which can help companies expand or refinance costly debt. Banks tend to work best with established restaurants, meaning it may be difficult for new or small businesses (like food trucks) to get the funding they need. Like SBA loans, the longer timelines could shut out restaurants that need quick cash to repair equipment or boost supply inventory during busy seasons.

Equipment financing.

In the case of a broken fryer or outdated appliances, restaurant owners may find equipment financing a suitable solution. These loans are made specifically for purchases of physical goods like ovens, refrigerators, POS systems, or other specialty restaurant equipment.

Anything bought with the funds becomes collateral for the loan money, so the lender gets some assurance of repayment (or they can take back the equipment). This creates less risk for the financing company, making them more willing to work with new or small restaurants, as well as those with weaker credit histories.

Approval can be very quick and allows restaurant owners to update their locations as needed without delay.

Business lines of credit.

A business line of credit is very flexible and gives business owners a set amount of money they can borrow from again and again. Whether it’s for payroll, inventory, marketing, or other needs, the money remains available as long as the account stays open, and the lender only charges interest on what’s used. It’s similar to a credit card in that way, but it can be taken out as cash.

Lines of credit may be appropriate for restaurants that need cash for seasonal swings or don’t need the large one-time lump sums of a traditional bank loan.

Short-term loans.

When a restaurant only needs cash for a short time, and long loan processes won’t do, a short-term loan can fill the gap. These loans are designed to be paid back quickly, within months, and have a higher interest rate than typical funding programs. They can be used for repairs, staffing shortages, when cash flow gaps appear, and when there’s no time to wait for more comprehensive lender underwriting.

Revenue-based financing.

Revenue-based financing, such as merchant cash advances give restaurants access to funds that are paid back incrementally through credit card transactions. They are best suited for restaurants with high credit card volume, as the repayments happen based on daily or weekly sales.

These loans work aren’t different than other cash advance options, in that they are easier to qualify for but charge higher interest rates.

Invoice financing for catering or B2B accounts.

Limited to catering services and those with large corporate accounts, invoice financing converts part of the value of unpaid invoices into a cash loan. The lender then collects on the invoice, taking some or all of the accounts receivable balance.

Costs for these services vary, and lenders may buy the invoices outright or let you continue to collect yourself (taking a portion of what you receive). The financing may appeal to businesses with uneven cash flow situations or that need more money to expand.

How to choose the right option.

All these funding choices have just one thing in common: they can help food businesses survive in difficult times or tap into potential growth opportunities. Beyond that, they are very different and require you to ask questions to know what’s right for you.

Ask these questions before you begin:

• What do I need money for?
• How much do I need to borrow?
• How quickly do I need it?
• How do I repay the money?
• Will it impact my daily operations?
• What does the financing cost in charges, fees, or interest accrued?
• Can we afford monthly payments?

Since there’s no one-size-fits-all solution, consider bundling multiple funding sources or relying on a different loan type at different parts of your business journey. Lendio can help you cut through the noise and find the lenders best matched to your needs, credit score, and timeline.