SBA vs Traditional Loans Comparing the SBA 504 Loan to Conventional Financing

SBA 504 vs Conventional Loan

The SBA 504 loan allows small businesses to put less money down and take advantage of longer below-market fixed interest rates, making owning commercial real estate an option for many small businesses that otherwise might not have the opportunity. Business owners can use their excess capital to grow their businesses instead of putting it into their real estate (a non-income-producing asset). And this is all in addition to the benefits that come from simply owning instead of renting.

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

Mercantile Capital Corporation
(SBA 504 Loan)
Conventional
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.
Equity As little as 10% of the total project cost down. 20 to 25% plus closing and soft costs.
Term 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.
Amortization 1st Mortgage: 20 or 25 years.
2nd Mortgage: 20 years. Usually 23 years blended, fully amortizing.
5-25 years.
Pricing 1st Mortgage: Competitive fixed or variable rates.
2nd Mortgage: Usually 0.5 to 0.75% less than competitive rates and fixed for 20 years.
• Both loans are assumable, subject to qualifying.
Competitive fixed or variable rates. Usually not assumable.
Personal Guarantees Required. Usually required.
Prepayment Penalty 1st Mortgage: Varies by lender.
2nd Mortgage: 10-year declining prepayment.
Varies by lender.
Fees 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 Generally greater than 650. Generally greater than 650.

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to One of Our SBA 504 Loan Experts

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