SBA 504 LOAN PROGRAM

SBA 504 loans are available for owner-occupied Real Estate, and can be used to purchase a building, finance ground-up construction or building improvements, or purchase heavy machinery and equipment.

What’s a common situation where an SBA 504 loan is the better choice?

When there are multiple partners and one partner has more assets and equity in their home than the other, an SBA 504 loan may be the best option. Again, an SBA 504 loan does not take a lien on any outside collateral or a home whereas a 7A loan does. If a 7a loan is used in this scenario, it becomes unfair to the more asset-rich partner.

Fees on 7a loans tend to rise with the project size. For example, the guarantee fee for a loan over $700,000 is 3.5 percent — for a project up to $1 million. When the project exceeds $1 million, the rate jumps to 3.75 percent.

However, with the 504 loan, the fees involved stay flat as a percentage whenever the loan amount increases. On a $1.25 million commercial real estate project, the fees for a 7a loan can top $27,891, while the fees for a 504 loan are just over $13,306.

Also, the down payment required for the $1.25 million 7a loan would be $187,500 while the down payment for the SBA 504 loan would be $125,000. In this scenario, there’d be a $77,085 out-of-pocket savings to the borrower if the property was financed with a 504 loan.


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