March 2019
Commercial Lending
SBA 504 Loan Interest Rate Report: March 2019

The bonds that funded March’s Small Business Administration (SBA) 504 loans continued to decline, albeit slightly this month, keeping full-term effective interest rates well below the Prime Rate.

SBA 504 Loan Interest Rate ReportSmall businesses are also taking notice of the 25-year fixed rate term option.  Since its first funding in July 2018, the number of 25-year loans has increased significantly, with the latest pool financing 116 loans amounting to almost $100 million in commercial assets financed nationally.

Plus, five more years to pay off an asset comes cheap.  The 25-year option has an effective ongoing fixed rate that is only 0.16% higher than the 20-year rate.

The bonds that funded the 25-year 504 loans were sold to investors at 3.42%, resulting in a final effective interest rate of 4.74% for March for standard 504 loans (compared to 4.77% for February and 4.88% for January).  The 25-year effective interest rate for debt refinance loans is 4.77% for March.

The bonds that funded the 20-year 504 loans were sold to investors at 3.20%, resulting in a final effective interest rate of 4.58% for March for standard 504 loans (compared to 4.64% in February and 4.75% for January). The 20-year effective interest rate for debt refinance loans is 4.61% for March.

The bonds that funded the 10-year 504 loans were sold to investors at 2.92%, resulting in a final effective interest rate of 4.62% for 10-year standard 504 loans for March/April (set bimonthly; compared to 4.65% for January/February and 5.18% for November/December).  The 10-year effective interest rate for debt refinance loans is 4.66% for March/April.

Understanding the 504 Loan Interest Rate

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

“Benefiting from (the) vacuum that Treasury rates have been locked in, the SBA 504 program continues to fund fixed-rate, long-term small business loans cheap to the Prime Rate. 2019-20C and 2019-25C in particular, represent 20 and 25-year loans that are funding more than 75bps below Prime.

“The usual suspects of weakening global growth, low inflation, and trade tensions continue to drive market performance, and expectations for any rate increases this year continue to wane. Helping this performance in US Treasuries was good demand for its recent debt sales.

“Ironically, the economic weakness that is identified as creating demand for Treasury debt did not affect demand for domestic equities as the tech heavy NASDAQ gained 3.8% on the week.  This performance seems to reflect confidence that the Federal Reserve Bank will be more than patient and actually look to support growth by cutting rates.  Analysts at JP Morgan announced they expect no increases this year, and Fed Funds futures contracts now assign a 26% probability of a rate cut,” 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.