Loan Comparison

Three programmes, one borrower
and a very different answer

SBA 7(a), SBA 504 and conventional debt are not interchangeable. They differ in what they will fund, how much equity they demand, how long they amortise, and what they cost once fees are counted properly. The lowest rate frequently loses on total cost, and the smallest down payment is often the most expensive over the term.

✓Guaranty fee charged correctly — On the guaranteed portion, tiered by loan size, and blended at the higher rate above $1,000,000 of that portion. Applying one rate to the whole note misstates the largest single fee in the deal.

✓Ongoing fee on a declining base — The annual guaranty fee accrues on the outstanding guaranteed balance and falls every year. Charging it flat on the opening note for the full term roughly doubles it.

✓504 stack derived, not assumed — The bank first mortgage holds 50% of project cost; a higher equity requirement shrinks the debenture, not the bank note. Debenture fees are grossed up so net proceeds still fund the project.

✓Bank first amortised beyond its term — A 504 bank first is a ten-year note on a twenty to twenty-five year schedule with a balloon. Amortising it over its own term overstates the payment by around sixty percent.

✓APR that includes the balloon — The solver discounts payments and the lump at maturity, with ongoing fees loaded in. Omitting the balloon turns a 10.5% note into a reported 2.5%.

✓Eligibility flagged, not just arithmetic — 504 cannot fund goodwill, inventory or working capital. 7(a) cannot carry a balloon. A programme that looks cheapest may not be available for your use of proceeds.

SBA 7(a)SBA 504ConventionalGuaranty FeeOngoing FeeDebenture Gross-UpBalloon ExposureTrue APRDebt ConstantDSCRCash to CloseEligibility

Side by Side

Three programmes, one borrower profile

Each option is sized under its own rules and amortised on the term it actually offers, rather than a common one. The lowest payment and the lowest total cost are usually different options -- the badges mark each separately.

Most flexible

SBA 7(a)

Prime 6.75% + 3.00

$20,592

per month

Equity required$250,000

Cash to close$252,500

Amount financed$2,310,781

Term / amortization25 / 25 yr

DSCR1.29x

True APR10.44%

Total cost$4,098,062

BalloonNone

Lowest fixed cost

SBA 504

Blend 6.75% nominal

$15,748

per month (both tranches) · lowest payment

Equity required$250,000

Cash to close$262,500

Amount financed$2,277,221

Term / amortization25 / 25 yr

DSCR1.69x

True APR7.65%

Total cost$1,850,336

Balloon$989,753

Lowest total costFastest to close

Conventional

Bank priced 8.75%

$16,570

per month

Equity required$625,000

Cash to close$643,750

Amount financed$1,875,000

Term / amortization7 / 20 yr

DSCR1.61x

True APR8.96%

Total cost$1,076,405

Balloon$1,540,810

Balloon of $1.54M at year 7 -- a refinancing not yet arranged.

Why the winners differ

The lowest monthly payment belongs to whichever option amortises longest, not whichever carries the lowest rate. Lowest total cost usually goes the other way. Lowest cash to close is a third answer again, and for most buyers it is the binding constraint -- the cheapest loan is irrelevant if closing it takes every dollar of reserves.

Three programmes, one borrowerand a very different answer

Three programmes, one borrower
and a very different answer