Podcast: Download (Duration: 11:16 — 10.9MB)
In this episode, we talk about the often asked question:
Which is better? The SBA 7a or 504 loan?
The answer usually is “it depends”. Every loan request is different. In general, the 7a is utilized more than the 504 for a couple different reasons. The 7a is a more liberal loan and has more versatility. If the lender is either a bank, credit union, or a non-bank lender (if a (PLP) Preferred Lending Partner), qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.
This is huge for timing purposes and flexibility in underwriting. This is also why some 7a lenders are way easier to work with than other lenders. Some 7a lenders will also fund a SBA 7a with a pari passu conventional loan allowing the borrower to get more loan proceeds. Another advantage is the 7a can fund blue sky or intangibles. Intangible assets are often the product of sweat equity and ingenuity in building your business. Historically, when businesses were sold, they would sell for net asset value plus an amount for this “blue sky.”
The 7a can fund this blue sky whereas the 504 can only fund hard assets.
At the end of the day, every project/request is different and we need to dig in a little before making a decision if the SBA 7a is better than the 504. Sometimes you can even pair a 504 with a companion 7a!