Sba 504 Vs 7A: Which Loan Program Is Right For Your Business?

by Rino Abdulah April 28, 2023 Posting Komentar

SBA Commercial Real Estate Loans 7(a) Versus 504 Loans from www.liveoakbank.com

Introduction

Small businesses are the backbone of the American economy, and they need funding to grow and thrive. The Small Business Administration (SBA) offers two loan programs to help small businesses access the capital they need: SBA 504 and SBA 7a. Both loan programs have their pros and cons, and choosing the right one for your business can be tricky. In this article, we'll compare SBA 504 vs 7a and help you make an informed decision.

What is SBA 504?

SBA 504 is a loan program that provides long-term, fixed-rate financing for real estate and equipment purchases. The loan is structured as a partnership between a borrower, a lender, and a Certified Development Company (CDC). The borrower contributes 10% of the project cost, the lender provides 50% of the project cost, and the CDC provides the remaining 40% of the project cost. The loan term is typically 10-20 years for real estate and 10 years for equipment.

What is SBA 7a?

SBA 7a is a loan program that provides general purpose funding for small businesses. The loan can be used for a variety of purposes, including working capital, equipment purchases, and real estate. The loan is structured as a partnership between a borrower and a lender. The SBA guarantees a portion of the loan, which reduces the risk to the lender. The loan term is typically 7-25 years, depending on the purpose of the loan.

Loan Amounts and Requirements

SBA 504 has a maximum loan amount of $5 million for standard projects and $5.5 million for public policy projects. The borrower must have a minimum credit score of 680 and provide a personal guarantee. The project must create or retain one job for every $65,000 of the loan amount. SBA 7a has a maximum loan amount of $5 million. The borrower must have a minimum credit score of 650 and provide a personal guarantee. The project must create or retain one job for every $120,000 of the loan amount.

Interest Rates and Fees

SBA 504 has fixed interest rates that are typically lower than conventional loans. The borrower pays a one-time fee of 3% of the loan amount to the CDC and a guarantee fee to the SBA. SBA 7a has variable interest rates that are typically higher than SBA 504. The borrower pays a guarantee fee to the SBA that ranges from 2.25% to 3.75% of the loan amount, depending on the size of the loan.

Advantages and Disadvantages

SBA 504's advantages include lower interest rates, longer loan terms, and higher loan amounts for real estate and equipment purchases. Its disadvantages include stricter eligibility requirements and limited use of funds. SBA 7a's advantages include more flexibility in use of funds and less stringent eligibility requirements. Its disadvantages include higher interest rates, shorter loan terms, and lower loan amounts.

Conclusion

Choosing between SBA 504 vs 7a depends on your business needs and goals. If you're looking to purchase real estate or equipment, SBA 504 may be the right choice for you. If you need general purpose funding, SBA 7a may be a better fit. It's important to work with an experienced lender and consult with a financial advisor before making a decision. With the right loan program, your small business can thrive and reach its full potential.