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SBA 504 & SBA 7(a) Comparison

 

SBA 504 Loan

  • Commercial Real Estate and Equipment
  • 90% Fixed Rate 

SBA 7(a) Loan

  • General Purpose

Loan Size

  • $250,000 to $5,000,000
  • $250,000 to $5,000,000

Interest Rate

  • Fixed
  • Fully amortized through the term of the loan
  • Interest rates on 504 loans are set monthly at the time of funding at an increment above the current market rate for five-year and ten-year U.S. treasury issues
  • Variable rate; some limited fixed-rate options
  • Fully amortized through the term of the loan
  • Interest rates are negotiated between the borrower and the lender subject to a mandated SBA ceiling and floor

Eligible Business Size

  • Business net worth not to exceed $15 million
  • Average net profit after taxes for 2 consecutive years not to exceed $5 million
  • Determined by industry type
  • Annual sales not to exceed range of $750,000 to $33.5 million for retail, service and agriculture
  • Number of employees not to exceed range of 100 to 1,000 for wholesale and manufacturing

Terms and Available Amortization Periods

  • 20 years fully amortized – real estate loan
  • 10 years fully amortized – equipment loan
  • No balloon payments
  • Up to 25 years – real estate
  • Up to 10 years – equipment, business acquisition
  • 5 to 7 years – working capital
  • All loans are fully amortized
  • No balloon payments

Loan Structure

  • 50% bank loan
  • 40% CDC loan
  • 10% borrower down payment
  • Loan structure negotiable; dependent on risk
  • 10% down payment (minimum)

Loan Purchase

  • Purchase existing building
  • Land acquisition and ground up construction (includes soft cost development fees)
  • Expansion of existing building
  • Finance building improvements
  • Purchase equipment
 
  • Expand, acquire or start a business
  • Purchase or construct real estate
  • Refinance existing business debt
  • Buy equipment
  • Provide working capital
  • Construct leasehold improvements
  • Purchase inventory

Loan Program Requirements

  • 51% owner occupancy required for existing building
  • 60% owner occupancy required for new construction
  • Equipment with a minimum 10 year economic life
  • 51% owner occupancy required for existing building
  • 60% owner occupancy required for new construction
  • All assets financed must be used to the direct benefit of the business

Collateral

  • Generally, the project assets being financed are used as collateral
  • Personal guaranties of the principal owners of 20% or more ownership are required
  • Collateral is the subject assets acquired by loan proceeds
  • Requires pledge of personal residence unless bank can justify why unnecessary
  • Personal guaranties of the principal owners of 20% or more ownership are required

Loan Fees

  • Fees are financed in the 504 loan
  • Fees are negotiated for the 50% bank loan
  • Servicing fee (lowest allowed by SBA) for CDC 504 plus a legal review fee
  • Fees can be financed in the 7(a) loan
  • Fees vary with the size of the loan accompanying the 504 loan
  • An additional .25% is charged on any loan portion above $1 million

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