July 2018
Commercial Lending
SBA Launches 25-Year Term Option for 504 Loans

After much anticipation, the Small Business Administration (SBA) 504 Loan Program this month priced its first 25-year debenture (which is in addition to 20- and 10-year term options), giving small business borrowers a much sought-after alternative to better manage their debt service.  Being able to secure longer-term, fixed interest rate financing in a rising interest rate environment permits borrowers to choose terms that best fit their needs.

25-Year Term Option for 504 Loans504 loans are funded by the sale of bonds (aka debentures) which are pooled and sold on Wall Street each month. See: Understanding the 504 Loan Interest Rate

The July sale of $27,536,000 in debentures reflects the demand that Certified Development Companies like Florida First Capital have seen from borrowers, with 23 loans being priced at a rate of 3.68%, +85 bps to benchmark Treasuries.  The median size of 25-year loans was $822,000 compared to the $453,000 median size of 20-year debentures.

July’s funding permitted these small businesses to secure an ongoing effective interest rate (the all-in cost to a borrower) of 5.32%, just 32 bps above the prime rate.  It has been reported that as much as $200 million of 25-year loans had already been approved by mid-June, so it is expected that the 25-year term option will see continued growth.

To be eligible for a 25-year term, 504 loan projects must have been approved on or after April 2, 2018.  Third party loans accompanying 25-year 504 loans must be at least 10 years.  504 loans approved prior to April 2, 2018, may not be extended to 25 years.

In regard to the ability to modify term lengths between 20 and 25 years on 504 loans, the SBA has determined that Certified Development Companies (CDC) will be permitted to request term modification after the Sacramento Loan Processing Center loan approval under the following circumstances:

1. The 504 loan application was approved on or after April 2, 2018.

2. The Certified Development Company must submit a 327 request including justification for the extended maturity.

3. The Certified Development Company must secure from the applicant a written request/consent to the modification and retain in file.

4. No changes may occur after the debenture closing request is submitted to the SBA.

Related: SBA 504 Loan Interest Rate Report: July 2018

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com.  Phone: 850.681.3601 or toll-free at 800.504.LOAN.