#1: The down payment.
The SBA 504 loan is better in terms of the down payment. We’re typically half to one third the down payment that an ordinary bank would require. So talking about a million-dollar purchase, you’re probably close to $100k as your down payment with us. With a bank, you’d be around $200-300k. It makes a big difference for a business owner.
#2: The length of the loan.
The second reason the SBA 504 loan is better than commercial loans is the amortization, the length of the loan itself. Most banks today will do a 15- or 20-year amortization. Our first lien loan of the 504 is a 25-year amortization. Then, of course, the second lien loan is the piece that’s guaranteed by the government. The SBA is a 20-year amortization. They blend proportionally to 23 years, so it’s a little bit longer amortization.
And why is that important to the business owner? Because it means a lower monthly payment. That’s always a critical piece anytime anybody’s contemplating buying commercial property. They want to know what’s the down payment, what’s my monthly payment, and am I getting a fair rate?
#3: The interest rate.
My third and final reason for choosing the SBA 504 is the interest rate on that second lien loan. This is what I’ve often called the best-kept secret in commercial financing. It’s a below-market, long-term fixed interest rate. It’s fixed for 20 years, which is almost unheard of, and it’s below market in terms of the rate itself.
When you blend that with the conventional bank pricing on the first lien loan, you end up with a blended interest rate below what any bank can provide. You’re getting half the down payment, maybe even a third. You’re getting longer terms, which is lowering your monthly payment. And you’re getting one of the most competitive interest rates available in the marketplace. It’s pretty much a no-brainer when people understand these three factors.