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Is an SBA 504 Loan a Good Idea? The differences between 504, 7(A) & Traditional Financing



Are you a small business dreaming of owning commercial real estate but held back by financial constraints? Look no further than the SBA 504 loan, a game-changing solution that empowers small enterprises to embrace property ownership. This innovative financing avenue offers reduced upfront costs and extended periods of below-market fixed interest rates, paving the way for countless small businesses to enter the realm of commercial real estate.


Imagine the possibilities when the barrier to entry is lowered, and the advantages become tangible. With the SBA 504 loan, your business can secure a foothold in the real estate market with minimal initial investment. The allure of longer-term, favorable fixed interest rates adds an extra layer of financial stability, ensuring your bottom line remains robust.


In this guide, we present a comprehensive comparison of financing options tailored for small business owners aspiring to acquire their own slice of commercial real estate. The decision-making process is now in your hands as you assess and select the financial product that seamlessly aligns with your unique needs and aspirations.


Here are the differences for your consideration.


SBA 504 LOAN

SBA 7(A) Loan

TRADITIONAL LOAN

Down Payment

10%

10-30%

25%

Interest Rate

Fixed

Variable, some fixed rates available.

25 Year amortizing, fixed for 5 years.

Term Length

10, 20 or 25

Determined by industry type.

Determined by lender.

Loan Size

No Limit.

Up to $5M

Determined by Lender.

Collateral

Project assets being financed are used as collateral. Personal guaranties of principal owners are required.

Subject assets acquired by loan proceeds. Pledge of personal residence. Personal guaranties of owners.

Project assets being financed are used as collateral. Personal guaranties of principal owners.

Best For

Owner occupied real estate and / or equipment financing.

Short or long-term working capital. Purchasing a business, refinancing debt, FF&E

Real Estate Purchase.

Advantages

Low down payment, long-term loan, fixed interest rates, fees and closing costs can be financed into the package.

​Short term working capital, also popular with banks.

Higher fees which may incentivize banks & credit unions to lend.

Disadvantages

Limited to use for owner occupied real estate, equipment and leasehold improvements.

Higher interest rates than a 504 loan. Variable rates can rise. Balloon payments and more expensive debt.

Much higher down payment can affect liquidity.

Contact Wasatch Business Finance today. We can answer your SBA Loan & business financing questions and help you get the option that is right for you.


Wasatch Business Finance / 385-799-6700 or www.WasatchCDC.com

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