How To Pick the Right SBA Loans

This Small Business Administration is designed to help companies with fewer than five hundred employees stay in business and help the economy thrive. While you can find informational resources through this administration, most people are more familiar with the financial help the SBA offers. SBA loans are divided into a couple of different programs, each with specific goals. The two most familiar are the 7(a), or general business loan, and the CDC/504, or real estate loan, and choosing the right one for your business needs can be the best way to grow and thrive.

What Is the CDC/504 Program?

The major differences between the SBA loan programs are how you can use the funds from each one. With the CDC/504 program, you can purchase equipment and owner-occupied commercial property with the help of a Certified Development Company. These are typically larger amount loans than other SBA programs, from $125,000 and $2 million with a ten percent down payment, and cannot be used for working capital. They also have a fixed interest rate amortized over twenty to twenty-five years, have fewer fees and do not require outside collateral.

What Is the 7(a) Program?

The 7(a) program offers loans which can be used to buy supplies, business licenses and initial franchise fees as well as working capital. These are generally smaller dollar amounts, up to five million dollars, and can have fewer prepayment penalties than CDC/504 loans. 7(a) SBA loans can be amortized over twenty-five years with a variable interest rate which it tied to the prime rate and require ninety percent collateral.

Which Is Better?

The better program really depends on your needs and your business situation. Since 7(a) loans are tied to outside collateral, for instance, they can be less fair to the business partner with more assets. The larger the project, the higher the percentage of fees with 7(a) loans whereas the fees with 504 loans are a fixed percentage. So if you are looking at a million-dollar real estate project, you will pay fewer fees with 504 loans. Your best bet is to research your financing options on your own and then take any questions you have to your bank’s loan officer to discuss which is best for your situation.

SBA loans are designed to help your small business grow and thrive with the working capital, real estate or equipment that you need. Understanding the differences between these loan programs can help you choose the right one for your company’s goals. For instance, if you get a CDC/504 loan, you need to know that it cannot be used for working capital, but it can have lower project fees.


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