January 2017
Commercial Lending
SBA 504 Loan Interest Rate Report: January 2017

The bonds that funded January’s 20-year Small Business Administration (SBA) 504 loans dropped 1 bps compared to December, which saw a 24 bps increase. Rates have been slowly rising since October, but continue to remain under 5% … for now.

SBA 504 Loan Interest Rate Report504 loans are funded by the sale of bonds (aka debentures) which are pooled and sold on Wall Street each month. Understanding the 504 Loan Interest Rate

The bonds that funded this month’s 20-year 504 loans were sold to investors at 2.80%, marking the 32nd consecutive month the bond rate has remained below 3%. This resulted in a final effective interest rate (the all-in cost to a borrower) of 4.58% for January for standard 504 loans. The 20-year effective interest rate for debt refinance loans is 4.62%.

The effective interest rate for 10-year standard 504 loans (which is set bimonthly) is 4.59% for January/February. The 10-year effective interest rate for debt refinance loans is 4.64%.

Frank Keane, fiscal and selling agent for 504 funding securities, commented following the January bond sale:

“The final week of trading for 2016 saw prices improve, and yields decline, as the Treasury saw strong demand for its auctions of intermediate-term debt. Indirect (foreign) purchases of the $34 billion 5-year maturity were the strongest, with 71% of the issue accounted for that way.

“Considering the volatility, it is interesting to note that the 10-year Treasury yield increased just 17 bps Y/Y, resulting in the second consecutive year that yields increased. Most of the move was driven by the election results, as market analysts expect inflation to rise as a result of increased spending to spur infrastructure growth.

“At 4.6%, the Unemployment Rate has surpassed the FOMC’s target; Personal Consumption Expenditures are at 1.41%, below target but showing signs of strength; and while the third target of global growth is spotty, focus is more closely centered on expected policies of our new administration.

“(Recent) FOMC minutes confirmed the vote to raise the Federal Funds rate by 25 bps was unanimous. The committee still supports ‘gradual increases,’ expecting three rate hikes in 2017, and will continue to reinvest proceeds from maturing Treasuries and principal payments from Mortgage Backed Securities from its $4.5 trillion Balance Sheet,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms for the purchase of major fixed assets, such as owner-occupied commercial real estate and/or heavy duty machinery and equipment.

504 loans are paired with private-sector commercial loans and provide up to $5 million for standard and public policy projects (aggregate limit) and up to $5.5 million per green initiative and small manufacturer projects. These are SBA 2nd mortgage loan portions only; there is no limit on overall project dollar size.

For more information about SBA 504 loans in Florida, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com.  Phone: 850.681.3601 or toll-free at 888.320.5504.