The SBA 504 loan finances fixed assets, commercial real estate and heavy equipment, through a two-lender structure: a bank (~50%), a Certified Development Company or CDC (~40%), and the borrower (~10%). It offers long, fixed rates but cannot fund goodwill, inventory, or working capital, so it rarely finances a pure business acquisition alone.
504 vs 7(a) at a glance
| Use | 504 | 7(a) |
|---|---|---|
| Real estate / equipment | Yes | Yes |
| Goodwill / business value | No | Yes |
| Working capital | No | Yes |
| Rate | Long fixed | Usually variable (Prime-based) |
Buyers of a business with a building sometimes pair a 504 for the real estate with a 7(a) for the goodwill.
Why it matters when buying a business
If your target owns its real estate, a 504 can lock in a low fixed rate on the property while the 7(a) covers the operating business. Because 504 won't touch goodwill, it's wrong for asset-light service businesses, most acquisition buyers still lead with the 7(a).
