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The SBA 504 loan allows small businesses to put less money down and take advantage of longer below-market fixed interest rates, making owning commercial real estate an option for many small businesses that otherwise might not have the opportunity.
The minimum down payment required for an SBA 504 loan is 10% of the loan's total value. However, if you run a special purpose business (as listed by the SBA) or your business has not been in operation for at least two years, then you will be required to put down 15% of the loan's value.
A: Yes. Again, because bonds are sold on the open market to fund the SBA 504 loans, there is a 10-year prepayment penalty associated with all 504 loans with a 20-year or a 25-year term and a 5-year prepayment penalty associated with all 504 loans with a 10-year term.
Neither option is better than the other. 7(a) loans are designed for working capital, while 504 loans are designed for equipment and real estate. While SBA loan rates and the amount you can borrow differ, your business's needs will determine which program is more appropriate.
A 504 loan cannot be used for: Working capital or inventory. Consolidating, repaying or refinancing debt. Speculation or investment in rental real estate.
In fact, “SBA 504 loans never take large business assets as collateral (except special-use properties). Instead, they primarily rely on the financed property as collateral, cutting the need for excessive collateral requirements.
Small businesses must provide extensive documentation including both business and personal tax information, and that documentation takes time to gather and process. While there's not a fixed timeline for SBA 504 loan approval, the entire process can take as long as 6 months, though 2-3 months is more typical.
Yes.SBA 504 loans and 7(a) loans can be used to buy real estate. These loans can also be used to construct new buildings and renovate and/or expand existing buildings.
The lender typically provides 50% of the capital for the loan, a CDC provides another 40%, and the final 10% is provided by the borrower as a down payment.
Small businesses must provide extensive documentation including both business and personal tax information, and that documentation takes time to gather and process. While there's not a fixed timeline for SBA 504 loan approval, the entire process can take as long as 6 months, though 2-3 months is more typical.
What's the difference between an SBA 7(a) and 504 loan? 504 loans are meant specifically for equipment financing or commercial real estate.7(a) can also be used for equipment and real estate but may also be used for any working capital expense.
Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.
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