In your quest to excel in the business industry, you are bound to run into SBA 7a loans and SBA 504 loans. However, picking the right loan program can be overwhelming. To make the right decision, you must have the right knowledge. Here is how to pick the best SBA loan option.
1. Understand the Difference
The urgency to secure funding for business expansion can make you overlook SBA loans’ differences. It is worth noting that commercial real estate investors use SBA 504 loans. Here, you are expected to pay at least a 10% down payment to secure the loan. Unlike the 504 SBA loan, the 7a loan has adjustable interest rates depending on the loan amount. Moreover, you get to use the funds as working capital.
2. Type of Business
Before securing an SBA loan, you must state your area of specialization. This will determine the loan amount and fees charged. For instance, you can use the loan to lease property, buy furniture and expand your staff size.
3. When is a 504 Loan Applicable?
Over the years, entrepreneurs have opted for SBA 504 loan to fund commercial real estate projects. It is suitable when one partner has more assets and equity than the other.
4. Fees Charged
With 7a SBA loans, you are subjected to fee variation depending on the loan amount. The higher the amount, the higher the interest rates. On the other hand, SBA 504 loans have a fixed percentage rate for any loan amount.
5. Application of a 7a Loan
If you encounter challenges raising working capital, you should consider getting an SBA 7a loan. Make sure you consult with the lenders before making a decision.
6. Is a 7a Loan suitable for Commercial Real Estate?
Some business owners find it wise to use a 7a SBA loan to finance their commercial real estate venture. However, this financing option is expensive as it requires collateral and has high-interest rates.
Financial constraints can take a toll on your operations. To access working capital, you should turn to SBA loans. Capital Funding is qualified to provide the best financing options.