August 2017
Commercial Lending
SBA 504 Loan Interest Rate Drops to Lowest of 2017

The bonds that funded August’s 20-year Small Business Administration (SBA) 504 loans dropped 23 basis points over last month, resulting in the lowest effective interest rate (the all-in cost to a borrower) of the year.  Frank Keane, fiscal and selling agent for 504 funding securities, comments.

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 2.75%, resulting in a final effective interest rate of 4.53% for August for standard 504 loans (compared to 4.76% in July). The 20-year effective interest rate for debt refinance loans is 4.57% for August.

The effective interest rate for 10-year standard 504 loans (which is set bimonthly) is 4.49% for July/August. The 10-year effective interest rate for debt refinance loans is 4.54% July/August.

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

““Geopolitical threats gave the market a bid … and were aided by strong demand for MBS and Treasury issuance, plus dovish inflation data.  In addition to short-term Bills, the Treasury sold 61% of its, 3-, 10- and 30-year securities ($62bln in total) to foreign buyers, with all auctions seeing good interest.

“(The 504 bond sale) was priced at 2.75%, its lowest rate since November and just 4bps above the 12-month average rate. If nothing else, this identifies how range bound the market has been and what an excellent time it is for small businesses to lock in fixed-rate term money.

“Additional Fed speak from Dallas Fed President Kaplan, ‘wanting to see more evidence’ that inflation is on track for 2.0% before supporting another rate increase this year helped reduce the market’s odds for that hike.  Fed Funds futures (used to gauge the Fed’s rate policy) closed Friday (Aug. 11) with a 36% chance of an increase, down from 47% Thursday, and 54% a month ago.

“Finally, safe haven trades end when headline news calms down so the bid for Treasuries can fade with normalization of talks on N. Korea, but the persistently low inflation readings have a more lasting impact. Even if the Fed doesn’t pursue a December rate hike, it is likely to make a September announcement on reduced reinvestment of its balance sheet holdings.  That too, is a form of tightening, and coupled with increased MBS issuance can be expected to put pressure on spread product,” 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, South Alabama or South Georgia, contact a Florida First Capital Loan Officer or email us at  Phone: 850.681.3601 or toll-free at 888.320.5504.