Quick comparison at a glance

  • SBA 504: Long-term financing for major fixed assets; larger amounts; structured partly through Certified Development Companies (CDCs).
  • Microloans: Small-dollar, short-to-medium term loans from nonprofit lenders or intermediary lenders; flexible uses like working capital, inventory, and small equipment.

(For deeper program pages, see the SBA’s official descriptions: SBA 504 program and SBA Microloan program.)

Why this distinction matters

Choosing the wrong product can cost you cash flow, limit growth, or create avoidable delays. SBA 504 loans are engineered to preserve working capital while enabling business owners to buy or improve real estate and equipment on long repayment terms. Microloans fill the opposite niche: fast, accessible capital for early expenses, repairs, inventory, or marketing when traditional bank credit isn’t available.

How SBA 504 loans work (structure, amounts, and terms)

  • Typical structure: A conventional lender provides a first mortgage (commonly ~50% of the project cost), a Certified Development Company (CDC) issues a second mortgage backed by an SBA 504 debenture (commonly up to ~40%), and the borrower contributes a down payment (commonly ~10%). Exact percentages may vary.
  • Loan sizes: CDC/SBA portion generally available up to about $5 million, with higher limits in special categories (for certain small manufacturers and energy projects). Combined project financing can exceed that when the bank portion is included.
  • Use of proceeds: Real estate acquisition, construction, long-lived equipment, and certain improvements and upgrades.
  • Terms and rates: Terms are asset-driven — equipment loans are shorter (often up to 10 years), real estate loans can extend to 20 or 25 years. Interest is typically fixed on the CDC/SBA debenture portion and often competitive versus conventional commercial loans.

Authoritative source: U.S. Small Business Administration — SBA 504 Loans (https://www.sba.gov/loan-programs/504-loans).

How microloans work (who lends, amounts, and common uses)

  • Lenders: SBA microloans are distributed through intermediary nonprofit lenders, community development organizations, and some mission-driven banks.
  • Loan sizes: Generally range from a few hundred dollars up to $50,000. Typical microloan amounts cluster between $5,000 and $35,000.
  • Use of proceeds: Working capital, inventory, supplies, small equipment, startup costs, and sometimes minor renovations. Microloan funds are not commonly used for major real estate purchases.
  • Terms and rates: Terms usually run up to about 6 years, but vary by lender. Interest rates vary based on the intermediary and borrower risk profile; they are often higher than CDC/504 debenture rates but lower than many online merchant cash products.

Authoritative source: U.S. Small Business Administration — Microloan Program (https://www.sba.gov/microloans).

Eligibility and underwriting differences

SBA 504 eligibility highlights:

  • Business must be for-profit and meet SBA size standards.
  • Proceeds must be used for qualifying fixed assets (real estate, equipment, certain improvements).
  • Lenders and CDCs will evaluate credit history, cash flow, collateral, and business projections. Local economic development goals can influence CDC participation.
  • The business typically must demonstrate an ability to create or retain jobs or meet a public policy goal through the project; rules and expectations vary by CDC.

Microloan eligibility highlights:

  • More flexible underwriting designed to reach startups, sole proprietors, and businesses in underserved markets.
  • Intermediary lenders often place greater weight on business plans, character, and cash flow prospects than on decades of credit history.
  • Collateral requirements are generally less strict for smaller microloans, but lenders commonly request personal guarantees.

Practical note from my practice: I’ve helped clients with thin credit histories secure microloans by pairing a concise business plan, defined cash-flow projections, and a realistic repayment schedule. For 504 applications, the documentation is heavier—prepared financials, tax returns, and detailed project budgets are essential.

Typical timeline and process

  • Microloan: Application to decision often takes a few weeks. Many intermediaries also offer pre-application counseling or mentoring as part of the process.
  • SBA 504: Expect a longer process—often 60–120+ days depending on complexity and the CDC’s pipeline. The SBA debenture schedule and multiple-party structure (bank + CDC + borrower) add steps. See our guide on the SBA Loan Application Timeline for a breakdown.

When to choose an SBA 504 loan

Choose 504 if:

  • You need to buy, build, or significantly renovate commercial real estate.
  • You require long-term, low-payment financing to preserve operating cash flow.
  • Your project size exceeds microloan limits and you can support a formal underwriting process.
  • You seek fixed-rate financing for a long-lived asset.

Example: A restaurant owner used a CDC/504 loan to buy a building and finance a major kitchen equipment package, keeping monthly payments manageable and freeing operating capital for staffing and marketing.

(See our in-depth page on the SBA 504 Loan.)

When to choose a microloan

Choose a microloan if:

  • You need quick, small-dollar financing for startup costs, inventory, or short-term working capital.
  • You’re an early-stage owner with limited credit history or you need a small injection to reach a bankable scale.
  • You value lender relationships and possibly training or mentoring that many intermediaries provide.

Example: A home-based artisan used a $12,000 microloan from a community lender to buy inventory and a point-of-sale system; the lender also provided a short workshop on pricing and bookkeeping.

(For more on microloan specifics and eligibility, see our Guide to SBA Microloans for Small Businesses.)

How to decide: a short decision framework

  1. Define the purpose: Is it a long-lived asset (real estate, heavy equipment) or short-term operating needs?
  2. Determine amount: If you need more than $50k (or you plan major construction), 504 or conventional financing is likely better.
  3. Consider timing: Microloans move faster; 504s take longer but usually deliver better long-term payments.
  4. Evaluate documentation readiness: Can you provide three years of tax returns, financials, and a project budget? If not, a microloan or SBDC counseling may be the practical first step.
  5. Factor in support needs: Microloan intermediaries often include technical assistance, which can be valuable for new owners.

Common mistakes to avoid

  • Applying for a 504 before confirming project eligibility or lining up the bank portion—this causes delays.
  • Assuming microloans are “free” of underwriting—small amount doesn’t mean no documentation.
  • Over-leveraging with a long real-estate mortgage when your cash flow is seasonal—match term length with cash-flow stability.

Practical checklist before applying

  • Prepare a clear use-of-proceeds statement and budget for the project.
  • Pull business and personal tax returns for the prior 2–3 years.
  • Create 12–24 months of cash-flow projections showing debt service coverage.
  • Gather ownership documents, business licenses, and lease agreements if applicable.
  • Contact local Small Business Development Centers (SBDCs) or your preferred CDC/microloan intermediary for pre-application review.

FAQ (brief)

  • Can I combine a microloan with an SBA 504 loan? Yes—businesses sometimes use a microloan for early working capital while pursuing a 504 for the long-term asset. Keep coordination and timelines in mind.
  • Are microloan interest rates fixed? That depends on the intermediary; confirm the rate and whether it’s fixed or variable in writing.
  • Do microloans include mentoring? Many intermediaries bundle technical assistance; ask during the application process.

Author credentials and practical experience

I’m a Certified Financial Planner (CFP®) with 15+ years advising small businesses and more than 500 client engagements involving financing decisions. In my practice I’ve helped clients stack microloans for initial working capital and later transition to CDC/504 financing to buy facilities as they scaled.

Sources and further reading

Professional disclaimer

This article is educational and not individualized financial or legal advice. Loan programs, interest rates, and eligibility rules change; consult the SBA, your CDC, or a lending professional to confirm current program rules and to get advice tailored to your situation.