Quick overview

SBA loans are partially guaranteed by the federal government to reduce lender risk and expand credit access for small businesses. The three programs most small-business owners encounter are: the SBA 7(a) (the broadest and most flexible), CDC/504 (designed for real estate and major fixed assets), and SBA microloans (small-dollar loans for startups and very small businesses). Each program has different maximums, typical terms, and eligibility nuances; choosing the right one depends on what you’re financing and how you want to repay it.

Sources: U.S. Small Business Administration pages for 7(a), 504 and Microloan programs (https://www.sba.gov/funding-programs/loans).

SBA 7(a) — The flexible workhorse

What it pays for

  • Working capital
  • Inventory and supplies
  • Equipment purchases
  • Business acquisition
  • Refinancing certain business debts

Loan size and terms

  • Maximum loan size: up to $5,000,000 (SBA-guaranteed portion varies by lender and loan size).
  • Typical terms: up to 10 years for equipment/working capital, up to 25 years for real estate; final terms depend on the lender’s policies and collateral.

Key eligibility and underwriting points

  • Most small businesses that meet SBA size standards are eligible; lenders evaluate credit history, cash flow, collateral, and personal guarantees.
  • Collateral is required when available; unsecured 7(a) loans are rare for larger amounts.

Pros

  • Extremely flexible use of proceeds.
  • Available through many banks and nonbank lenders—good market competition.
  • Can refinance existing business debt under qualifying circumstances.

Cons

  • Approval can be documentation‑heavy and take longer than a microloan or online small-business loan.
  • Interest rates and fees vary by lender and loan size; not always the absolute cheapest option.

Real-world note: In my practice, borrowers use 7(a) when they need working capital plus equipment or when buying an existing business because one loan can cover multiple needs.

Further reading: See our detailed comparison: “SBA 7(a) vs Community Bank Term Loans: Which Fits Your Business?” (https://finhelp.io/glossary/sba-7a-vs-community-bank-term-loans-which-fits-your-business/).

Authoritative reference: U.S. Small Business Administration — 7(a) Loans (https://www.sba.gov/funding-programs/loans/7a-loans).

CDC/504 (504) — For property and long-term fixed assets

What it pays for

  • Owner-occupied commercial real estate purchases and construction
  • Major, long‑term equipment (large, fixed assets)
  • Site improvements and heavy machinery used in production

How the structure works

  • A typical CDC/504 financing package is three parts: a private lender (usually a bank) provides about 50% of the project cost (first mortgage); a Certified Development Company (CDC) issues a 504 loan backed by the SBA for about 40% (second mortgage); the borrower provides a down payment of at least 10%.
  • Loan sizes: CDC/504 loans commonly reach several million dollars; SBA guidance notes maximums for specific projects—confirm current limits on the SBA site.
  • Terms: CDC/504 debentures are usually 10 or 20 years depending on the asset financed (20-year for real estate in many cases).

Pros

  • Low down payment (often 10%), preserving cash for operations.
  • Long terms and fixed-rate CDC portion can lower monthly payments.
  • Especially useful when the business will own the property and wants to lock in long-term financing.

Cons

  • Strict use restrictions (primarily fixed assets and owner‑occupied property).
  • More complex closing: two lenders are involved which requires coordination.

Real-world note: I’ve recommended CDC/504 for manufacturers and retailers when they need to buy a building—often the lower down payment and long amortization make growth feasible without overleveraging.

Further reading: Compare CDC/504 and microloans: “SBA 504 vs Microloans: Choosing the Right Small Business Loan” (https://finhelp.io/glossary/sba-504-vs-microloans-choosing-the-right-small-business-loan/).

Authoritative reference: U.S. Small Business Administration — 504 Loan Program (https://www.sba.gov/funding-programs/loans/504-loan-program).

Microloans — Small dollars, fast impact

What it pays for

  • Working capital
  • Inventory and supplies
  • Small equipment
  • Inventory rebuilding after disasters (where applicable)

Loan size and terms

  • Maximum: generally up to $50,000; average microloan size is often much smaller.
  • Terms: typically up to six years but depend on the intermediary lender’s policies.

Key features

  • Microloans are delivered through nonprofit intermediary lenders and community development organizations—approval criteria are often more flexible and oriented to borrowers with limited credit history.
  • Many technical-assistance programs are bundled with the loan to help the borrower succeed.

Pros

  • Easier for startups and entrepreneurs with limited collateral.
  • Focus on underserved communities and first-time borrowers.
  • Faster decision cycles with many community lenders.

Cons

  • Small maximum amounts—won’t suit capital-intensive projects.
  • Interest rates charged by intermediaries can vary and sometimes are higher than bank products.

Practical tip: If you need under $50,000 to bridge inventory or launch a new product line, a microloan can be faster and more forgiving than a bank loan. See our practical guide to microloans (https://finhelp.io/glossary/guide-to-sba-microloans-for-small-businesses/).

Authoritative reference: U.S. Small Business Administration — Microloan Program (https://www.sba.gov/funding-programs/loans/microloan-program).

Side‑by‑side comparison (high level)

  • Use the 7(a) if you need flexibility and could borrow up to $5M for many business purposes.
  • Use CDC/504 when the main goal is buying or improving owner‑occupied real estate or major fixed assets and you want long, fixed payments with a low down payment.
  • Use microloans for very small capital needs (usually ≤ $50K) where traditional bank underwriting makes approval difficult.

Table (short):

  • Loan purpose: 7(a) = general; 504 = property/equipment; microloan = small startup expenses
  • Max typical size: 7(a) = $5M; 504 = several million (CDC portion varies); microloan = $50K
  • Typical term: 7(a) = up to 25 years for real estate; 504 = 10–20 years for CDC portion; microloan = up to ~6 years

Eligibility, documentation and application timeline

What lenders will look for

  • Credit history (business and personal)
  • Business cash flow and projections
  • Collateral where available
  • Personal guarantees from owners with significant ownership

Documentation you’ll typically need

  • Business plan and executive summary
  • Cash-flow projections and balance sheet
  • Business tax returns (usually 2–3 years) and personal tax returns for owners
  • Bank statements and accounts receivable aging (where applicable)

Timeline

  • Microloan: weeks to a few months depending on the intermediary.
  • 7(a): varies—30–90 days or more depending on lender, the size of the loan and documentation readiness.
  • CDC/504: often longer because of the three‑party structure and the sale of debentures; plan for several months.

For a step-by-step checklist to prepare documents, see our guide: “Step-by-Step: Preparing Your Business Financial Package for SBA Lenders” (https://finhelp.io/glossary/step-by-step-preparing-your-business-financial-package-for-sba-lenders/).

Common mistakes I see (and how to avoid them)

  1. Applying to the wrong program. Match the loan product to the purpose—don’t use a CDC/504 when you need working capital.
  2. Weak cash‑flow projections. Lenders care about repayment ability—use conservative estimates and stress‑test scenarios.
  3. Poor documentation. Organize tax returns, bank statements, leases, and ownership docs before you apply.
  4. Ignoring alternatives. Sometimes community lenders, CDFIs, or merchant cash advances are a better short-term fit.

Quick checklist to choose the right program

  • Do you need capital for property or major equipment? Consider CDC/504.
  • Do you need flexible financing for working capital, acquisition or refinancing? Consider 7(a).
  • Do you need a small amount and may lack conventional credit or collateral? Consider a microloan.

Final notes and professional disclaimer

In my 15+ years advising small businesses, the most successful borrowers prepared complete financial packages and matched the loan product to the specific business need. SBA programs close important financing gaps, but they’re not automatic approvals — underwriting still matters.

This article is educational and does not substitute for individualized legal, tax, or financial advice. For guidance tailored to your situation, consult an accountant, SBA-approved lender, or a certified business adviser (SCORE or a Small Business Development Center).

Authoritative sources

Interlinks on FinHelp.io