You finally did it. You made the jump to start your own business, and things are going well. Your products and services are selling. Your company is growing, and it’s time for the next chapter in your story. May is Small Business Month, a time to recognize the entrepreneurs behind ventures like yours, the ones building, creating and taking on the challenges of ownership.
It’s also a good time to strategically pause and ask: What’s next?
Growth often brings opportunity — and pressure. Maybe the storefront that once felt spacious now feels like a tight squeeze. Maybe your equipment is producing at max capacity and begging for an upgrade. Maybe the hard money loans you took out to get started are expensive and coming due. Maybe a competitor unexpectedly approached you about buying them out.
Some challenges are exciting; others are stressful, but all are real turning points. Every small business owner has faced one of these moments and asked, “What’s the next right move?” It’s a great question, and a difficult one to answer. If every business had plenty of cash on hand, these challenges would be mere hiccups. However, for most, that isn’t the case, and relying on personal generosity — like a supportive "Aunt Sue" — isn't a typical funding strategy!
That’s why it helps to take time — and again, Small Business Month is perfect — to step back and explore the resources available to you. One of the most talked-about options is SBA financing. You’ve probably heard people mention it, but it can feel like a bit of a mystery.
Let’s demystify it. What are SBA loans, and could one work for you? Who do you talk to, and where do you start? Those are great questions, too, and they’re a little easier to answer.
What Is an SBA Loan, and Am I Eligible?
SBA loans are part of a program created by the U.S. Small Business Administration (SBA), a government agency established in the 1950s to help small businesses access the capital they need to grow, hire and invest in their future. Rather than lending directly, the SBA works with approved lenders, such as Bank of Utah, to guarantee a portion of the loan. That guarantee reduces the risk for the bank, which means more businesses can qualify, especially those that are growing quickly, just starting out or seeking more favorable terms.
Eligibility is often simpler than you might think. If you're a for-profit business located in and doing business in the United States of America, there's a good chance you’re eligible for SBA financing. From there, the right loan type depends on your goals, and most SBA lending falls into two categories:
- SBA 504 Loans
- SBA 7(a) Loans
Of course, as with any government program, there are policies, paperwork and eligibility requirements to navigate. But don’t let that deter you. The process is often more manageable than you’d expect, especially with an experienced SBA lending team by your side.
Now, let’s take a closer look at the two main SBA loan types and how each one might support your next step.
SBA 504 Loans: For Fixed Asset Financing
SBA 504 loans are designed for fixed asset financing, meaning long-term, tangible assets that help your business operate and grow. These include things like purchasing existing buildings or land, constructing new facilities, installing heavy-duty machinery and equipment, making improvements to property you own and, yes, even refinancing in some cases. 504 loans are not intended for investing in rental real estate, however.
With a 504 loan, the bank works in partnership with the SBA to finance the full cost of your project. For an existing business (in operation for two years or more) looking to purchase a multi-purpose building, for example, the typical structure looks like this:
- A 10 percent down payment from you (depending on your business and the type of property, this may increase to 15 or 20 percent)
- A 50 percent loan from the bank
- A 40 percent loan backed by the SBA
The SBA portion takes a second position behind the bank’s loan, which helps reduce risk for the lender and makes the loan more accessible for you.
SBA 7(a) Loans: Flexible Funding for Growth
SBA 7(a) loans are a little different. Instead of partnering with the bank to finance the project like with a 504 loan, the SBA issues a guarantee on the bank’s loan. That means the bank provides all the funding, but the SBA promises to cover a percentage if the borrower can’t repay it. This reduces risk for the lender, again, making it easier for small businesses to qualify.
7(a) loans can be used to purchase real estate, equipment, vehicles or inventory; fund short- and long-term working capital; refinance expensive debt; and even purchase other businesses. They can also help finance improvements to leased space, making it easier to tailor rental property to your needs.
This flexibility is one of the main differences between the 7(a) and 504 programs. While 504 loans are more limited to fixed asset purchases, the 7(a) loan can be used for a wider variety of business needs, offering more options for different growth scenarios.
Down payments vary with the 7(a) loan, so be sure to speak with an SBA lending officer about your specific situation to understand what will be required.
But Aren’t SBA Loans a Lot of Work? What to Expect from the Process
You may have heard that SBA loans can be a lot of work, that they take a long time and come with mountains of paperwork, making them not even worth the hassle. And honestly, it’s true that SBA loans can take a little more time and effort compared to a conventional bank loan. There are additional forms to complete and extra steps to follow. But in most cases, the benefits are well worth it. With an experienced SBA lending expert and the right bank, the process can be smooth and even more manageable than you might expect.
A Final Thought
Every business has its own story, and its own set of challenges when it comes to growth. Whether you’re expanding, refinancing or just exploring what’s next, understanding your financing options is an important step.
At Bank of Utah, our SBA loan team has decades of experience working with both 504 and 7(a) loans. They’ve guided business owners through just about every kind of situation; they know how to demystify the process and align funding with real-world goals.
If you’re thinking about what comes next for your business, having a conversation is a good place to start.
Sean Ashby is Vice President, SBA Sales Manager at Bank of Utah. He works closely with business owners throughout the state to provide SBA financing solutions tailored to their goals. With a strong understanding of both SBA 7(a) and 504 loan programs, Sean has been instrumental in supporting Utah’s small business community. Outside of work, Sean enjoys golfing, playing guitar, woodworking, coaching his sons’ tackle football teams and working on cars. He’s also a dedicated Green Bay Packers fan.
