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 Any business purpose real estate and heavy equipment; no refinancing or working capital | Any business purpose |
| Goal of program | Job creation and retention; economic development | 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- or 20-year maturity |
Variable or fixed; term of up to 25 years depending on use of proceeds |
| Maximum amounts | Bank loan size is unlimited; generally used for projects of $3.75 million to $5 million; $10 million for manufacturing |
$2.0 million loan with a $1.5 million guaranteed amount |
| Fees | Bank loan: Application fee and construction loan fee (if applicable) vary by bank; one-time SBA participation fee of 50 basis points paid by bank CDC loan: Upfront fees of approximately 2.75 percent which are financed |
Upfront guarantee fee of approximately 3% 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 $8.5 million; average net profit for 2 consecutive years not to exceed $3 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 100% of one year's interest in the first year, declining to zero at the midpoint of the loan | Low; no penalty for up to 25% prepayment in first 3 years |
