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SBA 504 Versus SBA 7(a)?

The US Small Business Administration's 7(a) loan program (sometimes also know as the SBA Express, Community Express, etc.) is a very popular SBA program because of its ability to provide non-fixed asset type financing.

A 7(a) loan is basically a bank loan with an SBA guarantee in the background, of typically 75% of the loan amount.Because of the fact that interest rates on 7(a) loans are mostly variable, they usually aren’t as good a deal for a small business owner on real estate projects as the SBA 504 loan program, although there are pros and cons associated with both programs.

The chart below represents a fictional loan request from a small business to purchase a million dollar facility, comparing both programs in terms of fees, interest rates, etc. Changing some of the variables (for example, increasing the interest rate on a 7(a) loan during the life of the loan) can have a significant impact on how one program compares to the other. Botom line, there are pros and cons of both programs and informed small business owner should consider both options in addition to other programs that might be available through the USDA, and even the companion CRF or NMTC loan programs offered by Colorado Lending Source, when reviewing owner-occupied commercial real estate financing options.