7(a) or 504 loan

How to choose between a 7(a) or 504 loan?

If a borrower is seeking working capital or financing leasehold improvements, then the options for SBA financing are limited to the 7(a) loan program.  However, if the financing involves buying a building, ground-up construction, building renovation, or the purchase of heavy machinery and equipment, the borrow needs to look at the SBA 504 loan program.  Even if the borrower needs working capital and/or franchise fees, etc,. in additions to a building, machinery and equipment , a combination of the 504 for the land, building and equipment and a 7a loan is better than a straight 7a loan.

The SBA 504 loan program was actually designed for small businesses to finance commercial real estate for use in business operations.  Meanwhile the SBA 7(a) loan program was originally designed for higher risk loans; like the acquisition of a business, working capital, or furniture and fixtures, and leasehold improvements.  Such loans were considered to be high risk because of very weak, limited, or even no collateral.

Financing owner-occupied commercial real estate is considerably less risky, yet many banks still only offer SBA 7(a) loans as the option for real estate.  The reason is simple: there is more fee income for the banks. Depending upon how the bank lending officers are commissioned, there is more earnings potential with the 7(a) loan than the 504 loan program, even though overall the latter may be more beneficial for the small business borrower.

We’re not your ordinary commercial real estate lender.  Because you, the client, expect and deserve the best.   On top of all that, you get to work with a team of real, knowledgeable, local people  who care deeply about helping small and mid-size business owners buy commercial property the right way in order to help them grow their businesses.  Take our 9 Question Quiz, or make an “Online Application”.    We look forward to speaking and working with you.  So contact us today to let so we can help your business grow.