504 Loans to purchase business with large asset base

February 18, 2025

by an intermediary from Northeastern University in Minneapolis, MN, USA

If I were to purchase a business for the fair market value of the building and equipment used to operate the business, could I use one 504 loan with 25 year amortization at the lower fixed rate (vs. 7a) for the entire purchase price? Or would there be some type of allocation towards the equipment at different terms (or another structure)?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

^redacted‌ Thank you for tagging me on this one. What DyShaun is talking about is if you do an SBA 7A loan. However, if you do an SBA 504 loan to purchase the building and equipment, you are going to need both the building and equipment to appraise out to support the loan amount. Furthermore, if more than I believe 25% of the value is in equipment, then you would need to do separate loans. The SBA 504 will only lend on hard equipment and not moving stock like vehicles. You cannot build in any value for the goodwill of the business or for working capital in an SBA 504 loan, so it is typically not the ideal loan for a business acquisition. Also, if there is a change in ownership of the business at the same time you are getting an SBA 504 loan, the SBA 504 requires a 15% equity contribution instead of the standard 10% required by the SBA 7A. I would be happy to discuss this in more detail at any time. You can reach me here or directly at redacted

Reply by a lender
from University of Southern California in Los Angeles, CA, USA

In my experience 7a loans are much faster and easier to close. There are quite a few lenders that offer a very very good rates for SBA 7a real estate loans. I just had a client close a 5m 7a loan for 7.69% fixed 25 years. This was a senior care deal with real estate/ beds/ health equipment.

Would love to help you with your SBA loan, whether 7a or 504. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can also click here to schedule a meeting with me: https://cal.com/ishan-jetley-3d73m8/30min. Look forward to chatting!

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