Comparison of SBA 504 and 7(a) Loan Programs
| Issue | 504 Loan Program | 7(a) Loan Program |
| Purpose of loan | Fixed assets such as owner-occupied real estate; furniture, fixture & equipment; machinery; refinancing existing debts; no working capital | Working capital; intangible assets(goodwill, covenant not to compete); inventory purchase |
| Goal of program | Stimulates private sector investment in long term fixed assets; create new jobs; increase and/or stimulate local tax base | Capital access – access to capital for businesses that would not qualify elsewhere |
| Rates and Terms | Bank loan: Variable or fixed; must be at least half as long as term of CDC loan
CDC loan: Fixed rate, 10, 20, or 25-year maturity |
Variable or fixed; term of up to 25 years depending on use of proceeds |
| Maximum project amount | Bank loan size is unlimited; generally used for projects of $3.75 million to $12 million; $5.5 million for manufacturing; no maximum in total project cost | Maximum $5 million guaranteed amount which bank funds |
| Fees | Bank loan: Application fee and construction loan fee (if applicable) vary by bank
CDC loan: Upfront SBA guaranty fees of 0.5 percent which are usually financed; SBA guaranty fee is updated every fiscal year |
Upfront guarantee fee of approximately 2% – 3.75% on guaranteed portion; ongoing fee of 54.5 basis points paid by lender |
| Bank lien Position | Bank has exclusive first lien | Bank holds the first lien; with typical 75% guarantee, the lender receives 75% of any proceeds from a liquidation and SBA receives 25% |
| Loan-to-Value | Bank loan: Typically 50%
CDC loan: Maximum of 40% |
Maximum of 90% |
| Qualification | Business net worth not to exceed $15 million; average net profit for 2 consecutive years not to exceed $5 million after taxes | Depending on the type of business, annual sales of less than $5 million or manufacturing firm of less than 500 employees |
| Prepayment penalties | CDC loan: Penalty is 10% of one year’s interest in the first year,9% next year declining 1% for 10th year | 5-3-1 for 3 years |