SBA 7(a) & 504 LOANS
The most popular two SBA loans are the 7(a) and 504 loans. Although there is some overlap between the two loans, a few important differences exist. For example, the 7(a) loan is more flexible, allowing for working capital expenses. The 504 loan has lower fees and more protection for multiple partner businesses.
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WHAT ARE SBA 7(a) & 504 LOANS?
The Small Business Administration helps businesses succeed in creating new jobs and boosting their local economies. SBA loans can be used for real estate, equipment, business acquisition, and working capital. They can even cover construction and renovation expenses. SBA loans are a valuable resource for many small businesses, including minority and women-owned companies. In some cases, SBA loans can also be used to refinance existing debt.
To qualify for an SBA loan, a company has to meet several requirements. To be considered a small business by the SBA, the company must have less than $15M in net worth and $5M or less in annual revenue. It also has to operate primarily in the United States and be creating, or planning to create local jobs. Certain business types are not eligible, such as churches, casinos, real estate agencies, and rare coin dealers. For full details, speak with a qualified broker to see if you qualify.
ADVANTAGES OF SBA 7(a) & 504 LOANS
- SBA loans give small businesses a second chance for financing.
- Interest rates are capped by the SBA.
- Several different loan options are available.
- Choose between fixed and variable rate loans.
If your business doesn’t meet the eligibility requirements for SBA funding, your broker can help you identify other options. Term loans, secured lines of credit, and hard money loans are some alternatives for borrowers with a damaged credit history.
The requirements for an SBA loan application can be rigorous and it may take several weeks to be approved. You can reduce your waiting time by working with your broker to make sure you submit a complete application. The SBA also offers a 7(a) express loan with a turnaround time of 36 hours. Talk to your broker to learn more.
Beyond credit and revenue requirements, the SBA has some restrictions on the types of businesses that are eligible for SBA loans. In addition, primary stakeholders in the business must be free from overdue federal debt (taxes, student loans, etc.) and federal convictions. For a full list of eligibility requirements, consult your broker.
When deciding between these two loans, it’s important to identify what your needs are. How much you want to borrow, the type of business you own, and the purpose of the loan are all deciding factors. Overall, one loan isn’t better than the other, just better suited to different purposes. Ask your broker to find out more about SBA loans.
