Last week we discussed the importance of the SBA Guaranteed Loan Programs in light of the recent 7(a) funding crisis. Without access to 7(a) loans, many small businesses would be simply unable to find suitable financing. There are some valuable lessons to be learned from this latest emergency.
The SBA 504 and 7(a) Guaranteed Loan Programs are designed for different business needs, with different goals in mind. The 504 loan is intended for economic development; therefore, its use is restricted to real estate and fixed asset purchases, as these promote job creation. The 7(a) loan can be used for working capital for almost any business expense. While the 7(a) loan can also be used for real estate purchases, the 504 loan is better suited for this purpose.
It is estimated that more than 30% of the total amount of 7(a) loans are used for financing commercial real estate. That is $5 billion in financing that could have been borrowed through the 504 Loan Program and prevented the need for Congress to raise the lending cap on the 7(a) Loan Program.
We have mentioned before that the 504 Loan Program is historically underutilized, and reaching the lending limits on the 7(a) program only proves our point. Community Business Finance's 504 Loan Program provides long-term, fixed-rate financing for the purpose of acquiring real estate.
504 loan interest rates are lower than 7(a) loan rates, and they are fixed, not variable. With interest rates on the rise, a variable interest rate almost guarantees you will pay a higher rate in the future. You will also have a smaller down payment with a 504 loan, leaving you more working capital.
504 loans do not get the same attention as 7(a) loans when you are interested in purchasing real estate, and the merits of the 504 Loan Program are never discussed. While the 7(a) Loan Program is necessary and helpful for small businesses, it wasn't designed to finance commercial property.
If 7(a) funds currently targeted for real estate purchases were acquired through the 504 Loan Program, it would free up much needed working capital funds in the 7(a) program. This would benefit both borrowers and lenders, and go a long way towards preventing another 7(a) funding crisis in the future.
To get started with a 504 loan, fill out a short online form and a loan expert will contact you to discuss your needs.
You can also contact our offices:
In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at firstname.lastname@example.org.
In Louisiana, call Jeanne Bergeron at 1-800-462-1017 or email her at email@example.com