Major Differences Between 504 And 7(a) Loans

 

  504 Loans 7(a) Loans

Amount

Up to $10 million. Up to 40% SBA total project cost. Up to 50% bank debt.

$3.75 million maximum guarantee. Up to $5.0 million maximum loan size.

Loan Structure Participants

Lender/bank, and the SBA.

Funding comes from the lender. SBA provides guaranty (from 75% to 90%).

SBA’s Participation

Direct funding from SBA guaranteed debenture sold on Wall Street.

Funding comes from the lender. SBA provides guaranty.

Eligibility

Net worth below $15.0 million and average net income for previous 2 years less than $5.0 million (no sales or employee limitation), OR eligibility under 7(a) size standards liquidity test.

Size standards are based either on the number of employees or annual sales (determined by industry). Call for details.

Use of Proceeds

Fixed assets only and related soft costs.

Working capital, fixed assets, refinance, business acquisitions/partner buyouts.

Refinancing

N/A

Eligible. Must result in 10% cash flow savings.

Processing Fees

2.65% (of which lender receives 1.5%). 0.5% of 1st mortgage amount to SBA.

2% SBA guaranty fee on loan of $150,000 or less. Up to 3.75% on higher amounts.

Other Costs

Legal fees are generally $2,500 plus usual and customary closing costs.

Application packaging fees are determined by the lender, plus usual and customary legal and closing costs.

Interest Rate

Debenture is fixed rate. Bank’s portion is at bank’s discretion.

The maximum is 2.75% above the prime interest rate as determined by lender/bank.

Term

10 or 20 years only

25 years maximum on fixed assets. 10 years maximum on working capital or a blend for mixed use of funds.

Economic Impact

One job per $65,000 of debenture. One job per $100,000 for small manufacturers. Waived for public policy goals. Call for details.

No requirement

Leased Portion

New construction: no more than 20% long-term and an additional 20% short-term. Existing buildings: 49%. Call for details.

New construction: no more than 20% long-term and an additional 20% short-term. Existing buildings: 49% Call for details.

 

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