SBA 504 Program





SBA 504 Program Overview

First, the basics. An SBA 504 loan is commercial real estate financing for owner-occupied properties. These loans require only a 10 percent down payment by the small business owner and funding amounts range $125,000 to $20 million.

On the other hand, SBA 7a loans can be used to buy a business or obtain working capital. The maximum loan amount is $5 million.

A 504 loan’s interest rate is fixed, and no outside collateral is required. Also, fees are lower compared to a 7a loan. Currently, 504 loans are amortized over 20 years, and began to accept applications for the new 25-year term SBA 504 loan.

The interest rate on a 7a loan, however, can be adjustable and tied to the prime rate. Collateral is required, at 90 percent. These loans are amortized over 25 years.

Here’s some history and more specifics on each program: The SBA 504 loan program was designed for small businesses to finance commercial real estate or large equipment for use in the business operations.

The 7a loan program was originally designed for higher-risk loans for things like the acquisition or starting of a business, working capital, or furniture and fixtures and leasehold improvements.

Some banks and alternative commercial lenders will provide lines-of-credit on an unsecured basis provided the company is creditworthy, and the financials support the facility.

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Details of a Line of Credit

  • Interest Rates: Prime + 1.5% – 2.75
  • Terms: 20-25 years
  • Line Amounts: $500,000 – $20,000,000
  • Time to fund: 60 days
  • Repayments: Monthly
  • Collateral Required: Yes and No
  • Time in Business: Start-up – 2+ years
  • Previous Loans Outstanding: Yes
  • Industries Funded: Most
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    Cons of a Line of Credit

  • High LTV of 90%
  • Pricing blended rate lower than 7a
  • Closing is typicaly 60 days
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    Cons 504

  • Interest rate higher than traditional CRE mortgages
  • Loan terms are usually 20 years
  • Most lender will ask for Yearly tax returns
  • Some lender charge .25% fee every year due to the cost associated with maintaining the loan
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