| REDCO/SBA 504 Loan | Conventional Bank Loan | SBA 7(a) Loan | |
| Down Payment | Usually 10% | 20%-25% | 10%-30% |
| Term of Loan | 20 years for real estate, fully amortizing; 10 years for machinery and equipment, fully amortizing. |
Determined by the lender.
Typically, real estate amortizes over 20 – 25 years, with a balloon/maturity at 10 years. Typically, machinery and equipment is 3-7 years. |
Depends on ability to repay. As long as 25 years for real estate, and 5-10 years for machinery and equipment. Loan is fully amortizing with no balloon. |
| Interest Rate | Fixed for entire term of the loan. All-in rate is currently under 5.00% | Determined by lender. Typically fixed for 3-7 years, then adjusts at determined periods to current market rates through loan maturity. | Depends on term of the loan, with maximum rates as high as Prime + 4.75%. Can be fixed or adjustable, as determined by lender. |
| Loan Size | REDCO/504 loan amount $100,000-$5.50 million.
Note that there is no maximum project size. The 504 loan amount is limited to the above, but the 1st trust lender can lend more than 50% of the total project costs. |
Determined by lender. | $5 million |
| Collateral | Generally, project assets being financed are used as collateral.
Personal guaranties of principal owners with 20% or more ownership stake are required. |
Generally, project assets being financed are used as collateral.
Personal guaranties of principal owners with 20% or more ownership stake are required. |
Generally, project assets being financed are used as collateral.
Pledge of personal residence or other assets may be required. Personal guaranties of principal owners with 20% or more ownership stake are required. |
| Best Use | Owner occupied real estate (at least 51%); machinery and equipment finance. | Real estate. | Short-term or long-term working capital, business acquisition, refinance existing debt, purchase FF&E. |
| Advantages | 1. 10% down payment preserves working capital; 2. Lowest rate of any government guaranteed business loan; 3. Long term financing 4. Ability to include soft costs and fees in total project costs/financing; 5. Diversifies business investments and provides stability. |
Competitive lending market may drive bank rates and fees down. | 1. Short term working capital; 2. Popular program with banks, allowing financing that may otherwise be outside of their normal lending policies. |
| Disadvantages | Limited to owner-occupied commercial real estate and machinery and equipment with lifespan of 10 years or longer. | 1. Higher down payment reduces business liquidity; 2. Variable loan rate that can increase over time; 3. Loans typically have balloon payments; 4. Additional loan covenants may be restrictive to the business. |
1. Typically higher rate and fees; 2. Variable loan rate that can increase over time; |