The differences between the SBA 504 & SBA 7A loan programs
So, you’ve settled on a commercial property to purchase for your business and you’re ready to take the next step. Now it’s time to select a loan for your business. Deciding between an SBA 7a loan and an SBA 504 loan can be a difficult choice. Before you make your decision, it is important to understand the differences between the two types of SBA loans.
SBA 504 Loan
The SBA 504 commercial mortgage program is the safest option for most small business owners. That is because this commercial loan program was designed to accommodate the needs of a small business owner purchasing property for their business.
Specifically, some advantages of the SBA 504 loan are:
It includes long-term fixed rates for up to 20 years
Up to 90% of the total project costs can be financed
Closing costs and loan fees can be included in financing
The first step to applying for an SBA 504 loan is to find out if you are eligible for this type of loan. In order to use this type of loan, businesses must:
Have less than $15 million net worth
Have an average of less than $5 million in after-tax income over the last two years, and
Be a for profit firm
Your team at SBA Expert can help you determine facts that are specific to your loan. However, you will want to know some additional information about SBA 504 loans before moving forward:
The typical down payment is 10%, but it varies depending on your business
Your business generally must occupy 51% or more of the building being funded
The minimum project size is $200,000, and the maximum is typically $5 million Exceptions can be made for larger construction loans
The loan structure typically consists of a 50% bank loan, 40% CDC loan and 10% borrower down payment
SBA 7a Loan
The SBA 7a commercial mortgage program could be an option for you. However, this program does not offer the same benefits as the 504 loan.
Some of the major differences between an SBA 7a loan and an SBA 504 loan include:
Rates are variable, but SBA 7a loans can include a longer term
SBA 7a loan fees are typically higher. These fees can be included in financing
A 10% minimum down payment is required, but loan structure varies based on risk
There is no economic impact requirement
Despite some disadvantages for this type of commercial mortgage, SBA 7a construction loans may be beneficial for you if you are financing a hotel construction. It is often necessary to provide a working capital loan along with real estate financing, so this type of commercial mortgage can be used in conjunction with an SBA 504 loan to finance your property.
Call the Construction Loan Team at SBA Expert
If you are interested in applying for a commercial mortgage, you need to speak with an experienced loan experts before deciding which loan program to apply for. Our team at SBA Expert can guide you through this difficult process and help you choose the loan program to best fit your needs.
To find out more information about our SBA construction loans, call SBA Expert today at (949) 439-1423 so we can begin working with you on your commercial mortgage.