| Major Differences Between 504 and 7(a) Loans |
| |
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504 Loans |
7(a) Loans |
| 1 |
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. |
| 2 |
Loan Structure Participants |
WBD, Lender and SBA. |
Funding comes from Lender; SBA provides guarantee (up to 85%). |
| 3 |
SBA's Participation |
Direct funding from SBA guaranteed debenture sold on Wall Street. |
Funding comes from Lender; SBA provides guarantee (up to 80%). |
| 4 |
Eligibility |
Net worth below $7.5 million and average net income for previous 2 years less than $2.5 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. |
| 5 |
Use of Proceeds |
Fixed assets only and related soft costs. |
Working capital, fixed assets, refinance. |
| 6 |
Refinancing |
Eligible provided that the original financing was pre-noticed to WBD/SBA and was for interim financing only. |
Eligible. Must result in 20% cashflow savings. |
| 7 |
Processing Fees |
2.65% (of which WBD receives 1.5%). .5% of First Mortgage amount to SBA. |
2% SBA guaranty fee on loan of $150,000 or less. Up to 3.75% on higher amounts. |
| 8 |
Other Costs |
Legal fees generally $2,500 plus usual & customary closing costs. |
Application Packaging fees determined by lender. Usual and customary legal and closing costs. |
| 9 |
Interest Rate |
Fixed monthly by open market debenture sale on Wall Street. |
Maximum of 2.75% above prime interest rate. Can be fixed or variable. Bank must pay an on-going fee of 0.5% to SBA on Guaranteed Portion. |
| 10 |
Term |
10 or 20 years only. |
25 years maximum on fixed assets. 7 years maximum on working capital. |
| 11 |
Leased Portion |
New construction: No more than 20% long term and an additional 20% short term. Existing buildings: 49%. Call for details. |
New Construction: 33% Existing Buildings: 49%. Call for details. |
| 12 |
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. |
