The Advantages of SBA 504 Loans

Getting a small business loan can benefit your company by allowing you to buy things that improve your profitability. You can get equipment that allows you to work more quickly and provide services of even higher quality. You can purchase a business location that has more space for your team to work. Before you can take advantage of your SBA loan, first you have a few decisions to make.

One of the main questions business owners have is whether to apply for an SBA 504 loan or a 7(a) loan. What are the differences between 504 loans and 7(a) loans? This guide can answer your questions.

What Are SBA 504 Loans?

All small business loans receive backing from the Small Business Administration. There are several types with unique requirements and uses, including microloans, emergency loans, 504 loans and 7(a) loans. SBA 504 loans are exclusively designed for real estate needs and large equipment purchases.

With this type of SBA loan, you can improve an existing real estate property, remodeling it or expanding it. This can help you make room for additional equipment or production areas. Store owners can expand to have more room for products.

A 504 loan can also cover new construction, allowing you to build your ideal property from beginning to end. You can also use the financing to purchase an existing building and adapt it to your needs.

Finally, SBA 504 loans are popular for purchasing heavy equipment. Construction businesses can use this loan to buy a skid loader, backhoe, loader, excavator or another piece of construction equipment. Transportation businesses can buy a new semi-truck or delivery truck. Health care practices can purchase high-tech diagnostic systems or treatment equipment.

Why Choose an SBA 504 Loan?

The 504 program covers up to 90% of the total value of the item you want to purchase. This high loan-to-value ratio makes it easier for small business owners to afford the purchase, especially if they don’t have a large savings account.

There are no ballooning payments to worry about, and the interest rates and repayment terms are exceptional. Loans are amortized for up to 25 years. A 504 loan is a great solution for small business funding.

There’s nothing wrong with 7(a) loans; they can be excellent tools as well, but for a different purpose. A 7(a) SBA loan is better for short-term financing and working capital. Both products provide interest rates that compete with or beat traditional financing.