By Luana Iftimie
Every business has unique needs and challenges. As a business owner, you want the lowest interest rate possible, an affordable payment and short lending terms but basic requirements need to be met first such as the reason or purpose for taking out a loan.
Borrowing within an SBA program can be successful as long as the business is for profit, located in the U.S. and is not funded by other businesses. The 504 program is strictly a commercial real estate-based program for ground-up building or land purchase, commercial construction and facility improvement, while the 7(a) program has broader purposes such as working capital, purchase of an existing business or just office improvements (fixtures, furniture, etc.).
Loans under the 504 program have a fixed interest rate and up to 20-year terms. The application and processing fees usually roll into the overall loan. The 7(a) loans and lines of credit have variable and fixed interest rates and the term can be extended up to 25 years. Learn More
That's why it's important to understand your businesses financial needs. Once the purpose is clear, applying for a loan and working with loan officers on the required documentation becomes easier to navigate.
Requirements for a 504 or 7(a) program
- Must be located in the U.S.
- Earned yearly profits in an eligible industry
- Under 1,500 employees
- Revenue under $38.5 million
- Net worth under $15 million
- In business at least two years
- FICO score above 700 (in many cases the 504 loan extends the lien on homes)
- Business financial statements (balance sheets, profit and loss, statement, business debt schedule, primary bank statements, business and personal tax returns for the past three years)
- Legal documents (articles of organization, business license)
- Personal guarantee for members that own 20% or more of the business
- Collateral (real estate such as your home, purchased inventory, equipment)
Contact a banker for customized information about your business eligibility.
Sources:
https://www.experian.com/small-business/business-credit-score.jsp
https://www.504experts.com/sba-504-loan/requirements/
https://www.sba.gov/funding-programs/loans
https://www.fundera.com/business-loans/sba-loans
https://www.tmcfinancing.com/does-the-sba-504-loan-require-a-business-plan/
https://www.nav.com/resource/sba-loans-7a-504/
https://fitsmallbusiness.com/types-of-sba-loans/
https://fas.org/sgp/crs/misc/R41184.pdf
https://www.504experts.com/sba-504-loan/requirements/
https://www.sec.gov/Archives/edgar/data/1115222/000111522217000007/a201610-k.htm