Just like the myths that SBA 504 loans have too much paperwork and take too long to process, you have probably heard that 504 loans have too many fees. This myth most likely originated from the 7(a) program's tiered fee structure and has been applied to all SBA loan programs. Let's examine the facts about 504 loan fees.
Every loan has some type of fees involved, but how those fees are handled makes a real difference for the borrower. In a 504 loan, the first lien portion is a commercial loan and the bank might charge an origination fee. This is a common fee for commercial loans and is usually .5 to 2 percent of the loan amount.
The SBA, however, is firm that borrowers should not be charged application fees or bank management fees. The SBA fees are roughly 3 percent of the guaranteed portion of the loan, or the second lien. The SBA uses these fees to cover costs of managing the loan program.
To preserve working capital for the borrower, all of the fees on the SBA 504 loan are added to the loan amount and amortized over the term of the loan. This also includes the underwriting fee and closing costs. Keeping out-of-pocket expenses to 10% of the total project cost allows businesses to allocate their cash reserves for other uses.
Since 504 loans have longer re-payment terms than conventional loans, and the fees are rolled into the amount of the loan, the loan fees should never become a barrier to financing. In conjunction with better interest rates and longer amortization, a 504 loan is a better loan for your business.
Don't believe the myths surrounding SBA loans. A 504 loan will save you money, allow you to keep more of your cash reserves, and better serve your financial future. Contact Community Business Finance to learn the facts about SBA 504 loans and why we are the right partner for your financial future.
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