Real Life Example of 7(a) versus 504 Financing

(Print out for side by side comparison.)

Loan Purpose: Purchase and build out of office condo for use as an office

7a Loan Financing Scenario

Loan Amount: Up to $2,000,000

Rate: Prime+1.75% (on this real deal)

Term: Up to 24 years

Cash Injection: $200,000 which is 10% of the Total Project Costs

Collateral: 1st Mortgage and lien on all business assets

SBA may require junior lien on personal real estate

Prepayment Penalty: 3 years declining 5-3-1%

Personal Guaranty: Required of all 20% or more owners

Project Costs:

Purchase of RE & improvements 1,200,000

Construction 600,000

Construction soft costs 25,000

Construction contingency 60,000

Interest reserve (paid during construction) 50,000

Construction Mgmt fee 20,000

Equipment, furniture 150,000

Working capital (moving, etc) 30,000

SBA Guaranty Fee 50,000

Closing costs 40,000

Total Project Costs $2,200,000

504 Loan Financing Scenario

Blended Loan Amount: Up to $1,822,500

Blended Rate: 6.74% (on this real deal)

Blended Term: 23 years (1st at 25 year amortization, 2nd at 20)

Cash Injection: $202,500 which is 10% of the Eligible Project Costs

Personal Guaranty: Required of all 20% or more owners

Project Costs:

Purchase of RE & improvements 1,200,000

Construction 600,000

Construction soft costs 25,000

Construction contingency 60,000

Interest reserve (pmt during constr) 50,000

Construction Mgmt fee 20,000

Interim Finance Fee 30,000

Closing costs 40,000

Eligible Project Costs $2,025,000

This loan requires more cash out of pocket.

In addition to the required injection, borrower must also pay for the ineligible project costs

202,500 injection based on eligible project costs

150,000 Equipment, furniture

30,000 Working capital (moving, etc)

382,500 total cash injection

* All rates are set at time of commitment.