"Thank you for the email. The Real Estate Advantage Loan (SBA 504) is a great long-term financing option for most borrowers, especially first time buyers. The process is pretty simple and easy to understand. We work with a bank of your choosing, so two loans are required. The bank makes a loan for 50% of the project cost. We loan 40% and the borrower comes up with 10% (assuming this is not a start-up, which requires an extra 5% down payment). Even though this is an SBA loan, the bureaucracy is not imposing and the paperwork is not terrible. We guide you through the entire process and make it as pain-free as possible. By the way, we are not part of the federal government. We are a very small not-for-profit whose sole task is to help borrowers and lenders with SBA financing. What is great about the 504 loan is the small down payment (10% as opposed to the normal 20%) and the long-term (20 years) fixed interest rate. The rate right now is right at 5%. It also hedges some of the bank’s risk, which makes them more likely to make the loan. A borrower seeking $1,000,0000 can expect to save approximately $60,000 over the term of the loan using the 504 program.
There are some negatives. Origination fees are 3% (these are rolled into loan, so they do not have to come out of working capital), which are higher than conventional bank fees, and there is a pre-payment penalty. The penalty is quite onerous in the beginning, but lessens to zero after year 10. It is also not the best loan for any deal under $200,000. However, borrowers in for the long-term can enjoy substantial savings when compared to conventional loans, despite the upfront fees and pre-payment penalties. For more information, go to our website at www.entdevcorp.org. "