October 2019
Commercial Lending
It Was a Really Good Run: October 2019 SBA 504 Loan Interest Rate Report

It was sure to happen and it did, this month.  The fixed effective interest rates for Small Business Administration (SBA) 504 loans saw a slight increase over last month, ending 10 consecutive months of declining rates and 4 consecutive months of the lowest rates in the program’s history.  Fret not, as 504 interest rates are still phenomenally low PLUS new reduced program fees for FY 20 have kicked in!

SBA 504 Loan Interest Rate ReportFor standard 504 loans, the servicing fee (paid annually) was reduced from 0.368% (36.8 basis points) to 0.3205% (32.05 basis points) of the outstanding balance of the loan.  For 504 refinance loans, the servicing fee (paid annually) was reduced from 0.395% (39.5 basis points) to 0.322% (32.2 basis points) of the outstanding balance of the loan.

The bonds that funded October’s 25-year 504 loans were sold to investors at 2.22%, resulting in a final effective interest rate of 3.480% under the new fee schedule for 504 standard loans and 3.482% for refinance loans.

The bonds that funded October’s 20-year 504 loans were sold to investors at 2.08%, resulting in a final effective interest rate of 3.398% under the new fee schedule for 504 standard loans and 3.400% for refinance loans.

The 10-year rate for standard 504 loans for September/October (set bimonthly) is 3.56% and 3.60% for refinance loans.

Understanding the 504 Loan Interest Rate

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

“Auctioning long-term debt at its lowest levels in three-years drew below average demand from investors, forcing dealers to position the securities and raising yields going into (the) pricing of the SBA 504 program’s October debentures.  Then Friday’s (Oct. 11) session was impacted by news of a first-phase agreement between the US and China that will pause some tariff increases which will be met with increased Chinese purchases of agricultural products.  The impact on markets was somewhat unexpected since much of the agreement had previously been settled.  Nevertheless, safe-haven trades were abandoned, and equities strengthened, gaining almost 1.5% on the week to levels that are within 2% of their recent highs.

“Of benefit to small business borrowers was (the Oct. 10) debenture sales that showed increased demand for the 25-year term issue, which was larger than the traditional 20-year issue for the third consecutive month.  (October pricing saw a) slight uptick in rate for the benchmark Treasury and the recent 504 debentures while the Prime Rate has seen a 50-bps decline since July.  At 2.08% and 2.22% respectively, the ongoing effective rates for the debentures are -154 and -146 bps to Prime,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates (no ARMs) and long amortization terms up to 25 years (no balloons) for the purchase of major fixed assets, such as owner-occupied commercial real estate, energy efficient “green” initiatives and heavy duty machinery and equipment and refinancing of conventional real estate loans and other business debt.

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.