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The SBA 504 Loan has lower down payment requirements and also provides 20/10 year fixed rates. Having fully fixed rates reduces the risk of rate volatility over the life of the loan which provides certainty and makes the 504 loan a competitive alternative.

By putting less money down, the business is able to save liquidity and reinvest that within their firm.  Putting 20% down can be cost prohibiting for many small businesses.

The following table depicts a comparison between the SBA 504 Loan and a conventional loan:

SBA 504 Loan Conventional Bank Loan
Loan Amount Up to 90% financing (inclusive of land, construction / renovations, soft and closing costs) 60% to 80% financing (depending on the property type)
Equity As little as 10% of the total project costs 20% to 40% plus closing and soft costs
Term 10 or 20 years fixed (no balloons or rate variability) 3, 5, 7 or 10 year balloons
Amortization 10 or 20 years Typically 20 years
Pricing Fixed for the full term indexed off of the 10 year treasury yield Variable or fixed for the term of the loan
Personal Guarantees Required by 20% or more owners Typically Required
Prepayment Penalty For the SBA loan there is either a 5 or 10 year prepayment Varies by lender
Fees Overall costs are typically 1.5% of the total project cost with the ability to finance the majority of the costs Typically 1% of the loan amount
Personal Credit Scores No specific requirement; however, lower scores will require thorough explanation Varies by lender
Economic Development / Public Policy Requirement Required for all SBA 504 Loans Not a requirement

The following table depicts a comparison between the SBA 504 Loan and the SBA 7(a) Loan.

SBA 504 Loan SBA 7(a) Loan
What is primarily financed? Real estate and heavy equipment

Refinance of commercial debt associated with prior real estate or equipment debt

Working capital, inventory, equipment, stock, or any other business asset and/or debt to be refinanced
Why is the program typically used? Low down payment and long term fixed rates Ability to enhance credit, low down payments, mitigate collateral shortfalls
Loan Structure 1st mortgage made by lending partner

2nd mortgage SBA / GSBC loan

Typically a single loan made and serviced by a 7(a) provider
Loan Size $150,000 – $25 million $150,000 – $5 million
Interest Rate 1st mortgage: conventional pricing

2nd mortgage: below-market fixed interest rate

Typically floating at WSJ Prime +1% up to WSJ Prime +2.75%
Term 1st mortgage 10 year (minimum)

With 20-25 year amortizations

2nd mortgage 10 or 20 years, fully amortizing

Up to 25 years, fully amortizing for real estate

Up to 10 years, fully amortizing for all other uses

Prepayment Penalty For the SBA loan there is either a 5 or 10 year prepayment Typically a 10 year declining prepayment
Fees Overall costs are typically 1.5% of the total project cost with the ability to finance the majority of the costs 3% guarantee fee based upon the entire project amount
Additional Collateral Not a typical requirement Required when the equity in the project is less than 15% of the project
Personal Credit Scores No specific requirement; however, lower scores will require thorough explanation Varies by lender
Economic Development / Public Policy Requirement Required for all SBA 504 Loans Must meet SBA’s 7(a) size standards
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We look forward to working with you on SBA 504 financing opportunities.

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