The SBA 7(a) vs. the 504 Loan

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Growing your carwash, gas station, or convenience store business often requires funding in the form of a conventional or SBA loan, but it's not always easy to find loans that best meet the needs of your business. Many banks avoid lending to businesses in these industries, and even if you find a bank willing to offer you a loan, how are you supposed to know if those are the best terms available to you?

A banker works for one bank. We work with our trusted national network of lenders to ensure that you’re getting the best deal possible and we work for you.

HOW TO GET AN SBA 7(A) OR 504 LOAN

Operators who have less than 5 units often utilize SBA loan programs. Getting an SBA loan can be a lengthy process requiring patience and a bit more documentation relative to a conventional loan. Given the numerous benefits of obtaining SBA loans including lower down payments, longer amortizations resulting in lower monthly payments, and longer terms, borrowers often prefer SBA loans. Getting your SBA loan doesn't have to be a frustrating or overwhelming process. PetroCal is here to help.

When using SBA loan programs to finance carwashes and gas stations, the 7(a) and 504 loan programs are most typically used. Here's what you need to know about SBA 7(a) and 504 loans:

WHO IS ELIGIBLE FOR SBA 7(A) AND 504 LOANS?

Many Borrowers with good projects can qualify for either a 7(a) or 504 loan. Businesses must operate for profit. They must meet the SBA's guidelines to be considered a small business, and operate in the United States or its territories.

The company's owners must have reasonable invested equity in the project typically exceeding at least 10% of the project cost.

Company owners must not have delinquent debt obligations to the U.S. government like defaulted student loans or past-due taxes.

Download the Loan Process Checklist

SBA 7(a) Loan

The SBA 7(a) loan is a widely used program that provides financial help to small businesses. Loans amounts are available for up to $5 million.

ENTREPRENEURS CAN USE SBA 7(A) LOAN PROCEEDS IN ANY OF THE FOLLOWING WAYS:

  • Purchase real estate
  • Construction or renovation
  • Working capital
  • Refinance business debt
  • Purchase equipment, fixtures, furniture, and supplies
  • Expansion

WHY SOME BORROWERS PREFER SBA 7(A) LOANS

  • Ideally suited for Borrowers pursuing a single project
  • Shorter pre-payment penalties
  • Faster approval
  • Fully amortized which means no balloon payment or need to refinance
  • Fewer restrictions on the use of loan proceeds

504 Loan

A 504 loan can be used to acquire or refinance land, buildings, improvements, equipment, and other fixed assets. Through this program, one could borrow in excess of $13 million for a single project. Projects financed under the SBA 504 loan program actually include two loans, a senior loan from a bank and a junior loan from a Certified Development Company (CDC) that is guaranteed by the SBA.

ENTREPRENEURS CAN USE 504 LOAN PROCEEDS IN ANY OF THE FOLLOWING WAYS:

  • Purchase real estate
  • Construction or renovation
  • Refinance some business debts
  • Purchase machinery, equipment, and fixtures
  • Expansion

WHY SOME BORROWERS PREFER 504 LOANS:

  • Ideally suited for Borrowers with multiple projects or who are looking to open multiple sites
  • Long-term fixed rate
  • Higher loan amount per project
  • Ability to finance more projects as there is a higher borrowing capacity per Borrower

MAJOR DIFFERENCES BETWEEN THE TWO TYPES OF LOANS:

Minimum Payment Down
  • SBA 7(a) Loan: Minimum of 10% of the total project cost, but many SBA 7(a) loans require 15-20% down.
  • SBA 504 Loan: 10% of the total project cost on general-purpose properties. For carwashes and gas stations, it is 15% for an expansion and 20% for a start-up or an expansion where the Borrower already has SBA debt.
Loan Uses
  • SBA 7(a) Loan: Real estate, equipment, refinance, business acquisition, inventory, or working capital
  • SBA 504 Loan: Real estate, equipment, or refinance.
Required Collateral
  • SBA 7(a) Loan: Assets acquired by loan proceeds. If the loan is under collateralized, SBA may require the lender to take a lien on a personal residence.
  • SBA 504 Loan: Financed assets used as collateral.

While both loans can be used to purchase, refinance, renovate, or build a carwash, gas station, or convenience store, the 7(a) loan is a more versatile option and the 504 is better suited to larger projects.

Finding the right type of loan with a lending partner you can trust can be overwhelming. You need to grow your business, but the process can be frustrating if you select the wrong lending partner.

Our experts have decades of experience helping entrepreneurs in the carwash, gas station, and convenience store industries get the financing they need. Contact us today to learn more about how we can help you get the SBA 504 or 7(a) loan you need to start or expand your business.

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