Why choose an SBA loan?

Many successful companies have used SBA loans in order to obtain more favorable financing terms than were otherwise available. Many of today's biggest names – such as Apple, FedEx and Nike – were assisted in their early years by programs of the Small Business Administration.

The SBA loan guarantee programs are among the most widely used tools in business financing today. Once perceived as a federal bureaucracy catering only to the economically disadvantaged, today's SBA programs actually enable many successful small and medium sized businesses to grow by borrowing on more favorable terms than they could obtain on their own.

SBA 504 Loan Program

Provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.

Benefits include:

  • Financing of up to 90% of project cost, enabling the small business to have liquidity for working capital. And the 504 loan fees are still the lowest on the market compared to 7(a) and other SBA loans.

  • Up to 25 year fully amortized loan terms available and the interest rate on the note remains the same through the term of the loan. SBA 504 loans are funded by monthly bond (debenture) sales to investors on Wall Street, therefore creating more competitive interest rates.

  • The SBA 504 loan program was created to increase the ability for small businesses to purchase business properties to assist the local communities economic state. A business owner may purchase the real estate or machinery for the business and get a tax benefit and add value to the real estate, while taking advantage of locking in occupancy costs for 25 years.

  • Stop paying rent and invest by owning your own building. Once the SBA 504 loan is paid off, a business can earn revenue by renting the space out to other businesses for a profit.

  • By purchasing and holding title to a building in the name of the business or as a holding company for the real estate. Minimize the liability of the business and the business owner. The options may be to combine a couple or more small businesses and receive one loan if it suits them best.

  • Most small businesses under $15 million are eligible for a 504 loan for real estate or equipment needs. Including Projects up to $5,500,000 of 504 financing. 

Requirements

Program offers up to 90% financing for Purchase OR Refinance of:

  • Existing land & building – borrower must occupy at least 51%

  • Land and construction of building – borrower must occupy at least 60%

  • Construction of building on Ground Lease

  • New or used equipment with remaining 10-year life expectancy

Loan Structure

Applicant/Borrower contributes 10% of total project cost in the form of cash / equity / subordinated financing.

  • Lender (Bank or other approved lending institution) provides part of the financing and secures loan in first position against project property. Lender portion typically equals 50% of the total project cost.

  • CDC/SBA provides remaining, typically 40% of the total project cost and secures loan in second position against project property

Compare your options

504 vs. 7(a) vs. Conventional

SBA 504 Loan
SBA 7(a) Loan
Conventional
Down Payment
Usually 10%.
Usually 10-30%.
25% or more for real estate.
Interest Rate
Fixed for 25, 20 or 10 years (See current rate on our home page).
Typically variable rate ranges from Prime Rate + 1% to 2.75%.
Typically 25-year amortizing, fixed for 5-years.
Length of Term
25, 20 or 10 years for real estate. 10 years for equipment. 10 years for leasehold improvements.
Determined by industry type. Annual sales restrictions. Employee quantity restrictions.
Determined by the lender.
Loan Size
$125,000 to $5.5 million SBA portion only – total project cost could be $25 million or more.
Up to $5 million.
Determined by lender.
Collateral
Generally, only project assets being financed. Personal guarantees of 20% or more from owners + business guarantee.
Subject assets acquired by loan proceeds. Pledge of personal residence unless bank can justify why its unnecessary. Personal guarantees of 20% or more from owners + business guarantee.
Generally, project assets being financed. Personal guarantees of 20% or more for owners + business guarantee.
Best Use
Owner-occupied (at least 51%) real estate. Finance of Equipment with remaining life expectancy of 10 years or more.
Short-term and long-term working capital, purchasing an existing business, refinancing non-real estate related existing business debt, purchasing FF&E.
Real Estate.
Advantages
10% down payment. Lowest rates of any government business loan. Diversify your business investment – real estate provides stability during economic instability. Fees and closing costs are usually financed in the package.
Short-term working capital. Popular product with banks.
Higher fees and rates may incent banks to lend.
Disadvantages
Limitations on use: owner-occupied real estate, equipment and leasehold improvements.
Higher rates than 504 loan program. Unpredictable future payments due to variable rates with typically no ceiling. More expensive debt can impede the business in the loan-term.
Much higher down payment reduces business liquidity. Balloon payments can cause instability.
Extra Tip
Ask the bank about the 504 Loan from Advantage CDC – otherwise they may not tell you about it!
Rates are already rising from recent historical low levels.
Do thorough price and options comparisons – just because you qualify doesn’t mean you got the best available loan product.

Advantage CDC is a direct lender for SBA 504 loans. We also provide placement services for SBA 7(a) Loans, Community Advantage Loans, and Conventional Loans. Contact us today, and we'll help you find the best loan option for your needs.

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Facts & Myths about SBA Loans

Applicants frequently have misconceptions about using government programs to help their businesses. The true facts about SBA guaranteed lending are set forth below.

Myths

  • SBA guarantees loans that are the highest risk.

  • The government wants to run the business.

  • Loans are primarily for minorities and economically disadvantaged groups.

  • SBA is the lender of last resort.

Facts

  • Loan guarantees are based on the same criteria used by the lenders

  • The government's credit, not government's business skills, is what the lenders want

  • Loan guarantees are issued without regard to race, creed, origin or sex

  • Guarantees go to businesses that need it, not to ones who do not.