What are SBA 504 CRE Loans?

The SBA 504 CRE loan program, also called the Certified Development Company program, is meant to help businesses finance the purchase of fixed assets at lower CRE rates than market value. Those assets can be large machinery or commercial properties, such as large office buildings or warehouses at below-market rates. These CRE loans are distributed in percentages to three participants: A borrower (a minimum of 10 percent) A bank (50 percent) The nonprofit Certified Development Company (CDC) at 40 percent This practice is called the 50-40-10 model. There's also the option for the borrower to put down a higher percentage, which adjusts the model. Loan amounts start at a minimum of $125,000 with a maximum that can go over 20 million dollars. The SBA 504 loan is best suited for businesses hopin…

What are SBA 7(A) CRE Loans?

The SBA 7(A) loan is a CRE loan with the primary purpose of funding an expansion or renovation. It's much smaller in scale than the SBA 504, carrying a minimum of 50,000 dollars and a much lower maximum borrowing amount of 5 million dollars. SBA 7(A) loans are backed by a private lender and a contribution from the Small Business Administration. This loan is a better fit for a business if they aren't just making real estate moves with the loans. These loans work great for working capital, typically having the shortest loan period. If used to purchase equipment or a business, the funds can have a loan period of 10 years. The longest period, 25 years, is reserved for specific types of real estate investment. These loans can be hard to qualify for and require a 10 percent down payment but rema…

How do you decide between the two CRE loans?

The most significant deciding factor is cost and purpose: how will your business use the money, and how much do you need? Urgency and timeline are also crucial factors. A few key questions to ask yourself: Do you or any partners have a personal residence? The SBA 7(A) loan will consider your partners and their assets — a personal residence could be required as collateral. If this is a concern, the SBA 504 is a safer route. Can you handle hefty fees? The fees for the SBA 7(A) rise with the size of the project — for loans over a million, rates can be as high as 3.75 percent (legal review fee, servicing fee, bank-portion fee, CDC fee). If fees are a concern, the SBA 504 loan may be better suited. How much down payment can you handle? The SBA 504 loan requires less of a down payment than the S…

CRE Loans: Differences Between the SBA 504 and SBA 7(A)

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