Why SBA 504?
SBA 504 Loan Comparison
SBA 504 loans enable business owners to buy commercial real estate and other fixed assets at below-market, long-term, fixed interest rates. Fully amortized over 25 years, these payments carry no balloon payment.
You can use loan proceeds to construct new or upgrade existing buildings, purchase equipment (10 yr. life expectancy), or convert facilities to energy efficiency.
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SBA 504 vs. 7(a) vs. Conventional
The SBA offers both the 504 and 7(a) loans, each valuable for their differences. The SBA 504 Loan is for the purchase of real estate and other fixed assets, and the 7a loan is more commonly used when working capital financing is needed. The 504 offers a low, fixed rate, while the 7(a) interest rate is variable and often unpredictable. The project maximum of a 7(a) loan is $5M and there is no project maximum with an SBA 504 Loan. The project maximum of a 7(a) loan is $5M and there is no project maximum with an SBA 504 Loan.
|SBA 504||SBA 7(a)||Conventional|
|Down Payment||10% minimum||10-15% minimum||25-40%|
|Interest Rates||SBA second mortgage at below-market rates, fixed for 25 years||Typically variable; tied to prime||Varies by lender|
|Fees||Included in SBA loan; approximately 2.65%||Paid out-of-pocket; typically about 2.75%||Paid out-of-pocket; approximately 1%|
|Project Size||No maximum||Maximum loan amount $5 million||No maximum|
|Collateral||No additional collateral required||Additional collateral typically required for 90% financing||Typically no additional collateral required|
|Prepayment Penalty||Yes, for first 10 years, declining each year||Yes, typically in first three years||Varies by lender|