504 LOANS FINANCE
SBA LOAN PROGRAMS: 504 vs 7(a)
504 Loan Program
The 504 Loan Program provides long-term, fixed-rate financing to small businesses to acquire real estate and/or heavy machinery & equipment. Current Average Rates: 4.00%-4.15% (Maximum interest rates on the SBA portion of 504 Loans – includes fees)
7(a) Loan Program
The 7(a) Loan Program helps businesses and start-ups meet various short- and long-term needs, such as working capital, leasehold improvements, inventory, equipment, or real estate. Current Average Rates: 5.75%-8.25% (Maximum interest rates on SBA 7a loans)
Maximize the Availability of SBA Dollars Overall
…by using the programs for what they were intended. If you’re financing owner-occupied commercial real estate or heavy machinery/equipment, think SBA 504. If the financing is to purchase a business, inventory or for working capital, think SBA 7(a).
Many lenders are familiar with the better known 7(a) and automatically use the program when financing any type of small-business concern. However, when the 7(a) is used for real estate or heavy equipment financing, it occupies more SBA-available dollars than 504. This may prevent the lender from being able to fund future working capital, inventory and/or other business needs when they arise…as they often do…because the 504 is for commercial real estate and heavy equipment only.
After businesses expand into a new commercial property, they may soon need financing again for working capital, inventory purchases or for money to acquire other businesses. If the 504 was used for the real estate purchase, there is still plenty of 7(a) dollars left available to do what it was designed to do…start or grow a business. It is important to save 7(a) dollars for financing working capital and inventory because there is little/no collateral value in these items and they cannot be financed with the 504 Loan Program.