SBA Business Loans 504 , 7A & Express Loans

SBA Programs – 504 & 7a Loans

Both programs are very useful for companies that have a positive cash flow and a Debt Service Coverage of 1.25. This website is extremely helpful:


 7(a) Loan Program Eligibility

The requirements of eligibility for the 7(a) loan program are based on specific aspects of the business and its principals. As such, the key factors of eligibility are based on what the business does to receive its income, the character of its ownership and where the business operates.

SBA generally does not specify what businesses are eligible. Rather, the agency outlines what businesses are not eligible.  However, there are some universally applicable requirements. To be eligible for assistance, businesses must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be engaged in, or propose to do business in, the United States or its possessions
  • Have reasonable invested equity
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Ineligible Businesses

A business must be engaged in an activity SBA determines as acceptable for financial assistance from a federal provider. The following list of businesses types are not eligible for assistance because of the activities they conduct:

  • Financial businesses primarily engaged in the business of lending, such as banks, finance companies, payday lenders, some leasing companies and factors (pawn shops, although engaged in lending, may qualify in some circumstances)
  • Businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except when the property is leased to the business at zero profit for the property’s owners)
  • Life insurance companies
  • Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify)
  • Businesses engaged in pyramid sale distribution plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants
  • Businesses deriving more than one-third of gross annual revenue from legal gambling activities
  • Businesses engaged in any illegal activity
  • Private clubs and businesses that limit the number of memberships for reasons other than capacity
  • Government-owned entities
  • Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting
  • Consumer and marketing cooperatives (producer cooperatives are eligible)
  • Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans
  • Businesses in which the lender or CDC, or any of its associates owns an equity interest
  • Businesses that present live performances of an indecent sexual nature or derive directly or indirectly more 2.5 percent of gross revenue through the sale of products or services, or the presentation of any depictions or displays, of an indecent sexual nature
  • Businesses primarily engaged in political or lobbying activities
  • Speculative businesses (such as oil exploration)

There are also eligibility factors for financial assistance based on the activities of the owners and the historical operation of the business. As such, the business cannot have been:

  • A business that caused the government to have incurred a loss related to a prior business debt
  • A business owned 20 percent or more by a person associated with a different business that caused the government to have incurred a loss related to a prior business debt
  • A business owned 20 percent or more by a person who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral depravity

Special Considerations

Special considerations apply to some types of businesses and individuals, which include:

  • Franchises are eligible except when a franchiser retains power to control operations to such an extent as to equate to an employment contract; the franchisee must have the right to profit from efforts commensurate with ownership
  • Recreational facilities and clubs are eligible if the facilities are open to the general public, or in membership-only situations, membership is not selectively denied or restricted to any particular groups
  • Farms and agricultural businesses are eligible, but these applicants should first explore Farm Service Agency (FSA) programs, particularly if the applicant has a prior or existing relationship with FSA
  • Fishing vessels are eligible, but those seeking funds for the construction or reconditioning of vessels with a cargo capacity of five tons or more must first request financing from the National Marine Fisheries Service
  • Privately owned medical facilities including hospitals, clinics, emergency outpatient facilities, and medical and dental laboratories are eligible; recovery and nursing homes are also eligible, provided they are licensed by the appropriate government agency and they provide more than room and board
  • An Eligible Passive Company (EPC) must use loan proceeds to acquire or lease, and/or improve or renovate, real or personal property that it leases to one or more operating companies and must not make any profit from conducting its activities
  • Legal aliens are eligible; however, consideration is given to status (e.g., resident, lawful temporary resident) in determining the business’ degree of risk
  • Probation or parole:  Applications will not be accepted from firms in which a principal is currently incarcerated, on parole, on probation or is a defendant in a criminal proceeding


Use of 7(a) Loan Proceeds

If you are awarded a 7(a) loan, you can use the loan proceeds to help finance a large variety of business purposes. However, there are a few restrictions. For example, proceeds can’t be used to buy an asset to hold for its potential increased value or to reimburse an owner for the money they previously put into their business.

Basic uses for 7(a) loan proceeds include:

  • To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
  • Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
  • Revolving funds based on the value of existing inventory and receivables, under special conditions
  • To purchase equipment, machinery, furniture, fixtures, supplies or materials
  • To purchase real estate, including land and buildings
  • To construct a new building or renovate an existing building
  • To establish a new business or assist in the acquisition, operation or expansion of an existing business
  • To refinance existing business debt, under certain conditions

SBA loans cannot be used for these purposes:

  • To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing
  • To affect a partial change of business ownership or a change that will not benefit the business
  • To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital to continue the business until the SBA-backed loan is disbursed
  • To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
  • For a purpose that is not considered to be a sound business purpose as determined by SBA
  • If you are unsure whether or not your anticipated use of funds is allowed, check with your SBA-approved lender



504 Guidelines / Requirements

– Credit score- 670 or higher, all 3 bureaus (No tax liens, foreclosures, judgments, or delinquencies)

– Must involve real estate

– LTV – 80% – 90%

– Must have experience in the industry or a very experienced staff

– Must have a positive cash flow – DCR of 1.25 or more

– Loan amount – $200k – $2mm


7a Guidelines / Requirements

–          The only difference between the two programs is that 7a loans are loans that deal with just the acquisition, i.e.: Just the purchase of the business without the real estate.

–          LTV 70% principal needs to bring 30% of the purchase price

–          Principal must have a primary residence (house) some type of savings, checking money market stocks, bonds.



–          Interest Rate – Prime + 2.75%

–          3 – 5 year fix rate

–          20 – 30 year am ( Based on Project )

–          10 – 15 year am ( Based on Acquisition-no real estate involved )