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Comparison of 504 & 7(a)
| MAJOR DIFFERENCES BETWEEN 504 and 7(a) LOANS | ||
| 504 Loans | 7(a) Loans | |
| Amount | $1.5 million in many cases. Between 30-40% of total project. $2 million if public policy goal is met. $4 million for small manufacturers. | $1.5 million maximum guarantee. $2 million maximum loan size. |
| Loan Structure Participants | WBD, Lender, and the SBA. | Funding comes from the Lender. SBA provides guaranty (up to 85%). |
| SBA's Participation | Direct funding from SBA guaranteed debenture sold on Wall Street. | Funding comes from the Lender. SBA provides guaranty (up to 80%). |
| Eligibility | Net worth below $8.5 million and average net income for previous 2 years less than $3 million (no sales or employee limitation) OR eligibility under 7(a) size standards Liquidity Test. | Size standards based either on number of employees or annual sales (determined by industry). Call for details. Liquidity test. |
| Use of Proceeds | Fixed assets only and related soft costs. | Working capital, fixed assets, refinance. |
| Refinancing | Eligible provided that the interim financing is short-term, interest-only. Call for details. | Eligible. Must result in 20% cashflow savings. |
| Processing Fees* | 2.65% (of which WBD receives 1.5%). 0.5% of 1st Mortgage amount to SBA.* | 2% SBA guaranty fee on loan of $150,000 or less. Up to 3.75% on higher amounts.* |
| Other Costs | Legal fees generally $2,500 plus usual and customary closing costs. | Application packaging fees determined by lender. Usual and customary legal and closing costs. |
| Interest Rate | Fixed monthly by open market debenture sale on Wall Street. | Maximum of 2.75% above prime interest rate or comparable LIBOR; fixed or variable rates. Bank must pay on-going fee of 0.55% to SBA on guaranteed portion.* |
| Term | 10 or 20 years only. | 25 years maximum on fixed assets. 7 years maximum on working capital. |
| Leased Portion | New Construction: no more than 20% long-term and an additional 20% short-term. Existing Buildings: 49% Call for details. | New Construction: no more than 20% long-term and an additional 20% short-term. Existing Buildings: 49% Call for details. |
| Economic Impact | One job per $50,000 of debenture. One job per $100,000 for small manufacturers. Waived for public policy goals. Call for details. | No requirement. |
* Call for details. Subsidies in place for fiscal years 2009 & 2010.
5.213%
July 2010
504 20-year term
