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SBA 504 Loan
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7(a) Loan
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Community Advantage
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Conventional
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| Down Payment |
Usually 10% |
Usually 10-30% |
10% - 30% |
25% for real estate |
| Interest rate |
Fixed for 20 or 25 yrs with effective rate at approx. (currently ~5%) All in |
Typically variable, Max. Prime Rate (3.25%) + 2.25-2.75% based on term; + fees; 0.55% ongoing guaranty fee + 0.25%-3.75% on guaranteed portion of loan, based on loan amount; some fixed-rate options available |
Typically variable, some fixed-rate options available |
Typically 25-year amortizing fixed for 5 years in the mid 6% range |
| Length of Term |
- 20- or 25-year for real estate
- 10-year for equipment
- 10-year for lease hold improvements
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- 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
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- 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
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Determined by lender |
| Loan Size |
$125,000-$5.5 million (Total project loan may be up to $13 million) |
Up to $5 million |
Up to $250,000 |
Determined by lender |
| Collateral |
- Generally, project assets being financed are used as collateral
- Personal guaranties of the principal owners of 20% or more ownership are required, business guarantee
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- Subject assets acquired by loan proceeds
- Pledge of personal residence unless bank can justify why unnecessary
- Personal guaranties of the principal owners of 20% or more ownership are required
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- Subject assets acquired by loan proceeds
- Pledge of personal residence unless bank can justify why not
- Personal guaranties of the principal owners of 20% or more ownership are required
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- Generally, project assets being financed are used as collateral
- Personal guaranties of the principal owners of 20% or more and business guarantee
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| Best Use |
Owner-occupied (at least 51%) real estate. Equipment finance. |
Short-term or long-term working capital and to purchase an existing business, refinance existing business debt, or purchase furniture, fixtures and supplies. |
Short-term or long-term working capital and to purchase an existing business, refinance existing business debt, or purchase furniture, fixtures and supplies. |
Real estate |
| Advantages |
- 10% down!
- Lowest rates of any government guaranteed business loan
- Stretch debt over a long term to free up cash and working capital in the business
- Long-term debt improves credit picture to facilitate credit lines and other short-term loans if needed
- Diversify your business investment – real estate provides stability during economic instability
- Fees and closing costs can be financed in the package
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- Short-term working capital
- Popular product with banks
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- Product specifically designed for smaller businesses in underserved communities
- Can be paired with (REAL/504) loan
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- Higher fees, rates may incent banks to lend
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| Disadvantages |
Limitations on use: owner occupied real estate, equipment and leasehold improvements |
- Higher rates than REAL (504)
- Variable rates can rise
- Balloon payments can cause instability
- More expensive debt can impede the business long-term
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Size limitation |
Much higher down payment reduces business liquidity |
| Extra Tip |
Ask the bank about the 504 Loan – otherwise they may not tell you about it. Visit www.nadco.org to find an SBA Certified Development Company (CDC) |
Expect rates to rise from recent historically low levels |
Only available through SBA Certified Development Companies (CDC). Visit www.nadco.org to find a CDC near you |
Do thorough price comparisons |
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