Staying Competitive

To stay on top of your game, your business needs the financial freedom to expand. SBA Loans are ideal for that purpose.

Comparing SBA Loans

The Small Business Administration offers a number of loan programs to business owners who are looking to start or expand their business. To help you decide which loan is best for your business, the chart below compares two of the most common: the 7(a) Loan and the 504 Loan.

SBA 7(a) Loan
Loan Size
     - Loan guarantee cannot exceed $3.75 million
     - Maximum loan amount is $5 million
Use of Proceeds
     - Land, building, machinery/equipment, purchase business inventory & working capital
Financing
     - Provided by Lender
     - SBA guarantees 85% to Lender on loan amounts of $150,000 or less
     - 75% guarantee on loan amounts of $150,000+
     - Borrower injection negotiated with Lender
Collateral
     - SBA requires lender to take all available collateral at the time the loan is made
     - Secured interest on business assets and/or a DOT on real estate
Interest Rates
     - Rates can be fixed or variable
     - Prime + 2.25% of term less than 7 years
     - Prime + 2.75% of term more than 7 years
Loan Terms
     - Working Capital - typically 7, but up to 10 years
     - Equipment - up to 10 years (or useful life)
     - Real Estate - up to 25 years
Underwriting Requirements
     - Personal guarantees by all owners with 20% or more
     - Adequate business collateral, or personal assets securing personal guaranty
     - Life insurance if necessary
     - Hazard insurance

SBA 504 Loan
Loan Size
     - $5 million
     - $5.5 million in some cases based on borrower’s generation of renewable energy
Use of Proceeds
     - Land, building, machinery/equipment & debt refinance for business expansion 
     - Temporary debt refinance of other debts through 09/27/2012
Financing
     - 50% financed by Lender
     - 40% SBA via a CDC
     - 10%+ borrower on existing 
     - Injected required may be increased on new businesses +5%
     - +5% on special-purpose real estate
Collateral
     - Lender holds first lien on real estate & secured interest in equipment/machinery
     - SBA holds second lien on real estate & secured interest in equipment/machinery
Interest Rates
     - Lender negotiates rate between borrower and bank (fixed or variable)
     - Lender sets other conditions of the loans
Loan Terms
     - Lender - minimum 10 years on Real Estate; 7 years on machinery/equipment
     - 504/SBA loan - 10 or 20 years
Underwriting Requirements
     - Personal guarantees by all owners with interest of 20% or more
     - Life insurance on business principals in amount of SBA loan
     - Hazard insurance

Source: SBA.gov