SBA's 504 vs. 7(a)

504 Loan Program * Provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings; * Secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from a Certified Development Company (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped; * Maximum SBA debenture is $1.5 million when meeting a job creation criteria or a community development goal; $2 million when meeting a public policy goal such as business district revitalization or expansion of women or veteran-owned businesses; * Interest rates tied to five-year and 10-year U.S. Treasury issues and fees equal 3% of the debenture and may be financed with the loan; maturities of 10 and 20 years are available; * Eligible businesses must operate for profit and fall within the size standards set by the SBA. A business qualifies as small if it does not have a tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate. 7(a) Loan Program * Used to establish a new business or expand or acquire an existing business; equipment, machinery, furniture, fixtures; long-term working capital; refinance existing business; short-term working capital including seasonal financing and export production; * Available on a guaranty basis; provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower; * Maximum loan amount of $2 million dollars. SBA’s maximum exposure is $1.5 million. Thus, if a business receives an SBA guaranteed loan for $2 million, the maximum guaranty to the lender will be $1.5 million or 75%. SBAExpress loans have a maximum guaranty set at 50%; * Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed Prime plus 2.25% if the maturity is less than seven years, and Prime plus 2.75% if the maturity is seven years or more. Loans between $25,000 and $50.000, maximum rates must not exceed Prime plus 3.25% if the maturity is less than seven years, and Prime plus 3.75% if the maturity is seven years or more. Loans of $25,000 or less, the maximum interest rate must not exceed Prime plus 4.25% if the maturity is less than seven years, and Prime plus 4.75%, if the maturity is seven years or more; * Eligible businesses must operate for profit; be engaged in, or propose to do business in, the United States or its possessions; have reasonable owner equity to invest; and, use alternative financial resources first including personal assets. Source: SBA