January 2019
Commercial Lending
SBA 504 Interest Rates Decline Well Below Prime

Despite the ongoing government and SBA shutdown, there is some good news for small business borrowers.  The bonds that funded January’s SBA 504 loans continued to decline over last month, which was the largest decline since February 2016, resulting in this month’s full-term effective interest rates (the all-in costs to borrowers) to fall firmly into the 4% range.

SBA 504 Loan Interest Rate ReportThe bonds that funded the 25-year 504 loans were sold to investors at 3.56%, resulting in a final effective interest rate of 4.88% for January for standard 504 loans (compared to 4.99% in December and 5.32% in November).  The 25-year effective interest rate for debt refinance loans is 4.91% for January.

The bonds that funded the 20-year 504 loans were sold to investors at 3.37%, resulting in a final effective interest rate of 4.75% for January for standard 504 loans (compared to 4.92% for December and 5.25% in November). The 20-year effective interest rate for debt refinance loans is 4.79% for January.

The bonds that funded the 10-year 504 loans were sold to investors at 2.95%, resulting in a final effective interest rate of 4.65% for 10-year standard 504 loans for January/February (set bimonthly; compared to of 5.18% for November/December and 4.84% for September/October).  The 10-year effective interest rate for debt refinance loans is 4.69% for January/February.

Understanding the 504 Loan Interest Rate

Frank Keane, fiscal and selling agent for SBA 504 program funding securities, commented following the January 10 bond sale:

“(T)he ten-year Treasury benchmark has stabilized more than 55 bps lower than its 4Q18 high yield. Now, it seems the markets have settled in expecting a reduced number, if any, of rate increases this year as expectations are for a slowing economy and the central bank has expressed how it intends to be patient with its tightening policy.  Helping rates rally late last week was a weaker than expected Consumer Price Index report of -0.1%, its first decline in nine-months.

“With the drop in rates, credit market spreads have been pressured, but are now stabilizing as market participants seem to be heeding Chairman Powell’s mantra of patience.  Amidst the market turmoil and the inability of High Yield issuers to come to market, the SBA 504 program priced its January debentures at lower rates m/m.  Most dramatic is the decline in the ten-year series from its November 8 sale date which pre-dated the most recent rate hike.  As a result of this tightening cycle that has had the most impact on short-term rates, all … January debentures represent an ongoing effective rate to small business borrowers well below the Prime Rate of 5.50%,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms up to 25 years for the purchase of major fixed assets, such as owner-occupied commercial real estate, energy efficient “green” initiatives and/or heavy duty machinery and equipment.

504 loans are paired with private-sector commercial loans and provide up to $5 million of aggregate SBA eligibility on standard 504 projects; up to $5.5 million per 504 energy efficient green project not exceed $16.5 million in the aggregate; and up to $5.5 million per eligible small manufacturing project with no limit on total SBA dollars available.  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 Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at info@FloridaFirst.com.  Phone: 850.681.3601 or toll-free at 800.504.LOAN.