There are several financing options for small businesses. The U.S. Small Business Administration (SBA) works with agency to set loan’s guidelines for small business owners. The agency doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA reduces risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.
There are two types of SBA loans – 504 and 7(a)
Why choose SBA 504 financing?
SBA 504 loans can be used to buy, build or renovate commercial real estate properties, or to purchase equipment that has a life expectancy of 10+ years. When you compare, the SBA 504 program has distinct advantages over the 7(a) program or conventional financing.
Advantages
- As low as 10% down, preserves your working capital
- Below-market, FIXED interest rates
- Lowest up-front costs
- Closing and other soft costs can be rolled into loan
- No maximum loan amount
- Multiple loan limits removed when energy efficiencies are implemented
- No additional collateral required
To be eligible for a 504 Loan, your business must:
- Operate as a for-profit company in the United States or its possessions
- Have a tangible net worth of less than $15 million
- Have an average net income of less than $5 million after federal income taxes for the two years preceding your application
SBA 504 Loan Comparison vs. SBA 7(a) vs. Conventional
Compare financing options in the chart below, then contact our SBA loan experts to learn more.
| 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 |
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