Types of SBA Loans

There are two different types of SBA loans - the SBA 7a loan program and the SBA 504 loan program.

The SBA 7a loan program is a 25-year fully-amortized new first mortgage.  It's an adjustable rate program, with no floor or ceiling.  The advantage of this program is that there is no balloon payment.  Balloon payments are scary.  Just ask any commercial property owner who has a balloon payment coming due during the Great Recession.

The SBA 504 loan program involves the recording of a new first mortgage and a new second mortgage simultaneously.  The first mortgage is from a conventional lender.  The second mortgage is made by a Certified Development Corporation, and it is guaranteed by the SBA.  The advantage of this program is that both the first mortgage and the second mortgage are fixed rate loans.  The disadvantage is that the conventional first mortgage will almost always have a balloon payment after ten years.

Both programs are terrific.  It's like being offered the choice between a blind date with a blonde supermodel or a blind date with a brunette supermodel.  Hellooo?  Either one will do quite nicely, thank you.