Get our SBA 504 Loan Pre-Approval Application: Download PDF

Share This Page

504 vs SBA 7(a) Loans

Many commercial lenders who talk about SBA financing or options with low down payments will only mention SBA 7(a) loans, neglecting the SBA 504 loan program altogether.

There is a very good reason for this: 7(a) loans are in their better interest, even if it isn’t beneficial for the small business owner taking out the loan. The 7(a) loan is a good and helpful tool for small businesses, but it wasn’t designed to finance commercial property. The 504 loan was.

By allowing small businesses to put less money down and minimize their cash flow considerations, we make owning real estate an option for many small businesses that otherwise might not have the opportunity. Business owners can use their excess capital and increased cash flow to concentrate on growing their businesses instead of putting it into their real estate (a non-income-producing asset). And this is all in addition to the benfefits that come from simply owning instead of renting.

Our SmartChoice® Commercial Loan provides up to 90% financing for commercial real estate with low monthly payments at below-market interest rates and in the process also creates new jobs for the community.

The following is a detailed comparison of the financing variables typically available to small business owners who want to acquire/construct their commercial real estate.



(the SmartChoice® Commercial Loan)


Bank Loan
Loan Amount

Up to 90% financing of the total project cost (inclusive of land, construction/renovations, soft costs, and closing costs).

75% to 80% of the appraised value or purchase price, whichever is less.


10% of the total project cost.

20 to 25% plus closing and soft costs.


1st Mortgage: 20 or 25 years.
2nd Mortgage: 20 years.

Usually 23 years blended. No balloons, only rate resets.

Frequently 5, 7, 10 or 15 years, then balloons.


1st Mortgage: 20 or 25 years.
2nd Mortgage: 20 years.

Usually 23 years blended, fully amortizing.

15 or 20 years.


1st Mortgage: Competitive fixed or variable rates.

2nd Mortgage: Usually 0.5 to 0.75% less than competitive rates and fixed for 20 years.* This is the least expensive financing available to most small business owners for commercial real estate.

Both loans are assumable.

*The blended, effective rate of our 1st and 2nd mortgages is nearly always lower than ordinary financing and is fixed for a longer period of time.

Competitive fixed or variable rates.

Usually not assumable.

Personal Guarantees

Has them, but for strong credits, can be limited to pro rata ownership.

Frequently has them.

Prepayment Penalty

1st Mortgage: 5-year or 10-year options, with the ability to pay up to 20% of principal annually without penalty.

2nd Mortgage: 10-year, but because this is the least expensive financing, it makes better sense to prepay the 1st mortage with any excess cash.

Sometimes has them, but frequently not.

Debt Service Coverage (DSC)

At least 1.0x frequently without maintenance.

Usually 1.2x or higher with maintenance.


Usually 1.5% of 1st mortgage and 1% of 2nd mortgage. Blends to 1.27%, but is negotiable with strong credit scores.

Usually 1.0% of loan amount.

Personal Credit Scores

Usually no less than 600.

Usually no less than 650.

Hopefully the above comparison helps you understand the benefits of our SmartChoice® Commercial Loan. If you have questions about this information, don't hesitate to contact us so we can help clarify things for you.

Are you eligible for a 504 loan? Apply Today

How it Compares Cost & Structure