504 vs 7(a) Comparison
| | SBA 504 LOAN (Commercial Real Estate & Equipment) 90% Fixed Rate | SBA 7(A) LOAN (General Purpose) |
|---|---|---|
| LOAN SIZE | Minimum - $100,000 Maximum - $20 million + | Minimum - $50,000 Maximum - $5 million |
| INTEREST RATE | Fixed | Mostly variable; some fixed options available |
| TERM | 20 years - real estate 10 years - equipment | Up to 25 years - real estate Up to 10 years - business acquisition and equipment 5 to 7 years - working capital weighted average for mixed requests |
| DOWN PAYMENT | 10% borrower * | Minimum 10% borrower (often more) |
| BUSINESS SIZE | Business net worth less that $15 million | Determined by Industry type |
| LOAN STRUCTURE | 50% bank loan 40% CDC/SBA loan 10% borrower down payment | Structure negotiable - depending on risk 10% minimum down payment from borrower |
| USE OF PROCEEDS | Purchase of existing building Land acquisition and ground-up construction Expansion of existing building Building Improvements Purchase equipment | Start, purchase or expand a business Purchase or construct real estate Refinance existing business debt Buy equipment Working capital Leasehold Improvements Purchase Inventory |
| PROGRAM REQUIREMENTS | 51% owner occupied for existing businesses 60% owner occupied for new construction Equipment: minimum 10-year economic life | 51% owner occupied for existing businesses 60% owner occupied for new construction All assets financed must be used for the direct benefit of the business |
| COLLATERAL | Generally, project assets being financed are sufficient collateral Personal guarantees of principal owners of 20% or more ownership | Assets financed by loan proceeds Generally, pledge of personal residence Personal guarantees of principal owners of 20% or more ownership |
| FEES | Fees are financed in the 504 loan Fees for the 50% bank loan Servicing fee plus a legal review fee | Fees can be financed in the 7a loan Fees vary with the size of loan Additional .25% charged on any loan portion above $1 million |