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Which SBA loan pays for equipment, 7(a) or 504?

Written by Kaz · Published 27 September 2026 · How figures are checked

Summary

Both can, but they draw the line in different places. A 504 loan covers machinery with at least ten years of useful life left, at a fixed rate tied to the 10-year Treasury, over 10, 20, or 25 years, and nothing in the project that isn't a fixed asset. A 7(a) loan covers buying and installing machinery and equipment of any life, and it can fold working capital, furniture, and supplies into the same loan. A single long-lived machine with its materials already funded fits 504; a machine plus the stock it will process, or equipment with a shorter life, fits 7(a).

The 504 route

SBA built 504 for major fixed assets, and its page now adds project-related AI-supported equipment for manufacturing to the list of eligible machinery. Fees total about 3% of the debt and may be financed with the loan.

What 504 won't pay for matters as much. Working capital and inventory are excluded, so the raw materials a new machine will process have to be funded somewhere else, and that second source has its own rate and term.

The 7(a) route

7(a) is the broader program. Next to machinery and equipment, including AI-related expenses, SBA lists working capital, furniture, fixtures and supplies, real estate, debt refinancing, and changes of ownership, and one loan can combine several of these.

The term follows the asset. Under 13 CFR 120.212, a 7(a) loan runs ten years or less unless it finances real estate or equipment with a useful life beyond ten years, and 25 years including extensions is the ceiling. When equipment takes time to install, the lender can add a reasonable period of up to 12 months to finish the installation. A production line that takes a quarter to commission can start repayment closer to the point where it earns money.

Most 7(a) term loans are repaid monthly, principal and interest, from business cash flow. A fixed rate keeps the payment level, and on a variable rate the lender may change the payment when the rate moves. The lender pays SBA's upfront guaranty fee and may pass it on to the borrower.

Taxes run on a separate track

Equipment purchases also carry federal tax limits that have nothing to do with the loan program. IRS Publication 463 for 2025 returns puts the Section 179 expensing limit at $2,500,000, reduced dollar for dollar once Section 179 property placed in service during the year exceeds $4,000,000. Bonus depreciation is 100% for qualified property acquired and placed in service after January 19, 2025, and stays at 40% for 2025 property acquired after September 27, 2017, and before January 20, 2025. The loan's term and the asset's tax life are set independently, so a machine written off in one year can still be repaid over ten.

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