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7a Versus 504
Overview
Among advantages to borrowers, there are significant savings as shown in the table below.

The following table is based upon a hypothetical $1 million project where 90% financing is provided under the 504 program and the 7(a) program. It assumes in each case that the bank (or non-bank lender) is making each of the 504 first mortgage loan and the 20- and 25-year 7(a) loans at Prime + 2%, and that interest rates remain constant at levels prevailing in early February 2001, when the prime rate was 8.5% and the effective rate on 20-year SBA 504 second mortgage loans funded that month was 8.4%.

 

  SBA 504 SBA 7(a)
20-year loan
SBA 7(a)
25-year loan
Financing provided
(including fees)

1st Mortgage Lender
$507,500.00
504 2nd morgage
412,000.00

$924,000.00 $924,000.00
Guaranty fees and other origination fees

1st Mortgage "points"
$7,500.00
SBA/CLP fees
11,075.00
Total $18,575.00

$23,728.75 $23,728.75
Average monthly payment

1st Mortgage
$5,066.78
504 2nd mortgage
3,468.15
Total $8,534.93

$9,225.03 $8,724.24
Total payments to maturity 1st Mortgage
$1,216,026,.70
504 2 nd mortagae
738,608.85
Total $1,954,635.55
$2,214,007.24 $2,617,271.69
Savings, SBA 504 vs. 20-year 7(a): $259,371.68
Savings, SBA 504 vs. 25-year 7(a): $662,636.16