SBA Comparative Loan Analysis

7 (a) vs. Lender & 504

Commercial Real Estate Project Totaling $1,000,000

7 (a) LENDER & 504
504 N/A $400,000 40%
Lender (90%) $900,000 $500,000 50%
Down Payment (10%) $100,000 $100,000 10%
Total Project (100%) $1,000,000 $1,000,000 100%
7 (a) LENDER & 504 LENDER 504
Loan Amount $900,000 $900,000 $500,000 $400,000
Interest Rate¹ 7.00% 5.76% 7.00% 4.16%
Years Amortized 20 20 20 20
7(a) Guarantee Feepaid up front $20,250 N/A N/A N/A
7(a) Processing Fee² $3,896 N/A N/A N/A
504 Lender Participation Fee N/A $2,500 $2,500 N/A
504 Processing Fee
included in 504 note
N/A $6,000 N/A $6,000
504 Guarantee Fee
included in 504 note
N/A $2,000 N/A $2,000
504 Funding Fee
included in 504 note
N/A $1,000 N/A $1,000
504 Underwriter Fee
included in 504 note
N/A $1,636 N/A $1,636
TOTAL SBA FEES $24,146 $13,136
Total Note Amount $900,000 $911,000 $500,000 $411,000³
Monthly Payment $6,978 $6,402 $3,876 $2,526
Effective Interest Rate 7.00% 5.76% 7.00% 4.16%
Total Principle & Interest $1,678,616 $1,536,551 $930,359 $606,193
Cash Down Payment $120,250 $100,000
Total Cash $1,798,866 $1,636,551
$162,315 504 CASH SAVINGS

Notes:

  • Lenders do not have to be a licensed SBA lender to participate in the 504 program
  • Lenders have no servicing requirements on the 504 loan
  • Lenders do not have to remit monthly SBA fees on 504 as they do with 7(a)
  • Lenders’ rates typically adjust every 3 – 5 years
  • The 504 rate is fixed for the 20 year term on the 504 portion of the loan

Footnotes:

¹ The 5.76% interest rate is a blended rate of the 504 loan and the Lender loan.

² The 7(a) processing fee is paid by the Lender via the SBA 1502 report monthly on each 7(a) loan. The amount is .494% of the interest on the SBA quarantined portion of the loan.

³ 504 fees are included in the note amount and rounded to the nearest $1,000. In this example the $6,000 + $1,000 + $1,636 = $8,636 is rounded to $9,000 and is included in the note. This takes the 504 portion of the loan from $400,000 to $409,000. The rounding difference of $364 will be refunded to the borrower when the 504 loan is booked.

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