SBA’s recent decoupling of the 7(a) and 504 loan programs creates meaningful financing opportunities for borrowers. For lenders and counsel, however, an important limitation remains: the change works in only one direction, making approval order a critical consideration.
On May 18, 2026, SBA issued Policy Notice 5000-879058, “Coordination of 7(a) and 504 for Maximum Loan Limits,” effective July 4, 2026. The notice clarified that outstanding 7(a) loan balances do not reduce a borrower’s available 504 financing. Eligible borrowers may therefore obtain 7(a) financing first and subsequently access the separate 504 limits.
Why sequencing matters
Existing 504 exposure still affects capacity for a subsequent 7(a) loan under the statutory aggregate SBA exposure limitation. Accordingly, approving 504 financing first may restrict the borrower’s ability to obtain subsequent 7(a) financing. Lenders and counsel should evaluate the borrower’s financing needs across both programs before determining the application and approval sequence.
The applicable 504 dollar limits refer to the SBA gross debenture, rather than the total project financing.
Additional qualifying 504 projects
Under SOP 50 10 8.1, Section C, Chapter 1, Paragraph D.1, multiple ordinary 504 loans remain subject to a $5 million aggregate limit for the borrower and its affiliates, including outstanding and committed loans. Qualifying small-manufacturer and energy projects receive different treatment, with a limit of $5.5 million per eligible project.
Additional 504 loans may finance separate qualifying projects. For small-manufacturer projects, the SOP provides a $5.5 million per-project limit without stating an aggregate dollar cap across those projects. Each project must independently qualify, and the borrower must demonstrate repayment capacity for the combined debt. Consequently, the frequently cited $10 million combined financing figure is not an absolute ceiling.
Energy projects require an additional qualification. The May notice expressly imposed a $16.5 million aggregate energy cap and stated that qualifying energy loans do not reduce the ordinary $5 million 504 limit. SOP 50 10 8.1, effective October 1, 2026, retains the per-project limit and separate treatment but omits the express energy cap. That omission should not be treated as conclusive evidence that the cap was eliminated. Lenders should obtain written SBA confirmation before relying on energy financing above $16.5 million.
Practical steps
Lenders and counsel should address these issues early:
What may come next
Industry efforts are underway to increase lending limits under both the 7(a) and 504 programs, including expanded financing for qualifying manufacturers, and to achieve full reciprocal decoupling. These objectives require legislative action. Increasing loan limits alone would not necessarily eliminate the aggregate exposure restriction or resolve the approval-order issue.
To achieve full decoupling, legislation should expressly exclude 504 exposure from the 7(a) calculation regardless of approval order and address the applicable aggregate guaranteed-exposure limit. Until legislative changes become effective, lenders should continue to apply existing limits, coordinate approvals, and document available financing capacity.
For more information about 504 lending, please contact the attorneys at Starfield & Smith, P.C. at 215.542.7070 or visit us at www.starfieldsmith.com.
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