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Exploring the SBA 504 Loan Program

Updated: Dec 19, 2023

Unveiling the Pros and Cons with GHC Funding


Navigating the realm of small business financing can be complex, and the SBA 504 loan program stands out with its enticing low interest rates and favorable terms. In this piece, we'll dissect the advantages and disadvantages of the SBA 504 loan, offering insights to aid your decision-making process.



Benefits and Drawbacks of the 504 Loan Program


SBA loans, characterized by their remarkably low interest rates and borrower-friendly terms, attract small business owners seeking financial support. While these loans present opportunities, they also come with their share of pros and cons. Let's delve into both aspects to help you gauge if an SBA 504 loan aligns with your business needs.


What are the Benefits of SBA 504 Loans for Small Businesses?


1. Broad Qualification Scope: The SBA 504 loan program accommodates a wide range of small businesses in the U.S., making it accessible to most enterprises. However, eligibility hinges on your business being beyond the initial planning stages, ready for activities like property purchase, building investment, or new construction.


2. Generous Financing: Small business owners can access up to 90% financing through the 504 loan program, surpassing many alternatives in the market. Even SBA 7(a) loans, while funding between 85% and 90%, fall slightly below this threshold. Conventional loans typically offer less (60% to 75% funding).


3. Extended Amortization Periods: SBA 504 loans provide extended amortization periods, ranging from 10 to 25 years based on the financed project. This flexibility allows for spreading payments over a more extended period, reducing the amount paid per installment.


4. No Balloon Payments: Unlike balloon loans, 504 loans eliminate the concern of a substantial payment at the term's end, resembling a fixed-rate home mortgage.


5. Fixed-Rate Interest: Despite market fluctuations, the interest rate on the loan, fixed below the current market rate, remains consistent for the loan's duration (10, 20, or 25 years).


6. Cost Efficiency: In comparison to conventional loans requiring around 1% out-of-pocket fees and 7(a) loans demanding 2% to 3.75%, 504 loans limit fees to a maximum of 2.65% of the loan value. These costs are included in the loan amount, translating to a minimal down payment as the primary out-of-pocket expense.


7. Low Down Payment: With a typical requirement of only 10% down, the SBA 504 loan surpasses affordability compared to a 7(a) loan (10% to 15% down) or a conventional loan (25% to 40% down). Down payment variations are contingent on individual circumstances, discussed in a later section.


Unlock financial possibilities with GHC Funding:

- Access diverse lenders.

- Find the ideal product match.

- Receive multiple quotes.


What are the Drawbacks of the SBA 504 Loan Program?

While the advantages of a 504 loan are evident, a few drawbacks merit consideration, applicable not only to the 504 program but all SBA real estate loans.


1. Application Complexity: The 504 program's application process is intricate, involving three parties—the borrower, the CDC, and the lender. Unlike a conventional loan, negotiations and compliance with SBA requirements require consensus among all three.


2. Underwriting Bottlenecks: All SBA 504 loan underwriting is centralized, occasionally leading to bottlenecks. Despite the thoroughness of underwriters, their meticulous scrutiny may necessitate increased involvement from the lender, CDC, and the borrower.


3. Time Considerations: SBA real estate loans, including the 504 program, do not boast swift processing times. While a home mortgage might close in 30 days, SBA real estate loans typically take 60 to 75 days to finalize and receive funding.


GHC Funding is your ally in securing commercial financing. Fill out the form below for a risk-free consultation and a complimentary SBA loan quote tailored to your needs.

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