SBA 504 Loan Interest Rates
Official monthly SBA 504 effective interest rate tables can be found at Eagle Compliance LLC. 25- and 20-year term loans fund every month; 10-year term loans fund every other month. Effective interest rates are inclusive of servicing fees, which are subject to credit risk of the applicant.
The interest rate for 20-year Small Business Administration (SBA) 504 loans held steady in August following an increase last month, but for how long?
504 loans are funded by the sale of debentures (or bonds) which are pooled and sold on Wall Street each month. The effective interest rate - the rate borrowers pay - is comprised of the debenture rate (which is pegged to an increment above the current market rate for U.S. Treasury issues), the note rate and ongoing carrying costs of the program as set by the SBA.
There were 504 loans funded nationally in August with a loan pool size of $398,994,000. The debenture bonds that funded the 20-year loans were sold to investors at 3.16%, resulting in a final fixed effective interest rate of 5.24% (last month's rate was 5.23%, up from 4.52% in June). The eight-month average this year is 4.51%.
Frank Keane, fiscal agent for Development Company Finance LLC - the entity responsible for marketing and selling 504 funding securities - commented following the August debenture sale:
“Inertia - (n.) expressing lethargy or disinterest is descriptive of this month's market as participants are certain that the Federal Reserve Bank will soon reduce its $85 billion of monthly purchases and Treasury rates are expected to rise to the 3.0% area by year end.
“Given that scenario investors are cautious, coupled with the seasonal slowdown of activity there is little incentive to commit without being compensated by wider spread than in previous sales.
“There are several products we reference when pricing the monthly sale, but it all starts with the yield on 10-year Treasuries. At the peak of the May-July selloff that yield had risen 111 bps from its “safe haven” level of a year ago as a result of a stronger jobs market and improved, though fragile, stability in global economies.
“That explains the recent wider spread, + 0.57 bps this month, compared to the May pricing spread of 0.27 bps.
“Our 12 month pricing spread, +0.38 bps, was the tightest in program history, and was an improvement from the previous 12 month periods spread of +0.75 bps.
“Compared to other CMBS and Investment Grade Corporate securities, the 504 loan program maintains its overall pricing advantage even as rates have spiked,” Keane said.
No doubt that interest rates are on the rise, however 504 rates are still at low and affordable levels and small business owners who are seeking financing for commercial real estate or fixed equipment purchases are urged to take advantage of these great rates before they are totally gone.
504 loans are paired with private-sector commercial loans, providing up to $5 million of small business financing for standard projects and up to $5.5 million for green initiative and small manufacturer projects (SBA loan portions only; there is no limit on overall project dollar size).
There is just no better deal available today for the purchase of real estate or for expansion of existing facilities than the 504 loan program.
For more information about SBA 504 loans in Florida, contact a Florida First Capital Loan Officer here.
