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February SBA 504 Interest Rate Report: Rate Drops Again

Feb 2015

Borrowers of Small Business Administration (SBA) 504 loans continue to benefit from historically low interest rates as the Federal Reserve continues to ponder its decision on when a rate hike will occur.

504 loans are funded by the sale of 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.

The bonds that funded this month's 20-year 504 loans were sold to investors at 2.46%, marking the ninth month in a row the bond rate has remained below 3%. This resulted in a final effective interest rate (the all-in cost to a borrower) of 4.54% for February (down from 4.60% in January and 4.78% in December.).

The effective interest rate for 10-year 504 loans (which is done bimonthly and was set last month) is 4.41% for January/February (down from 4.55% in November/December).

Frank Keane, fiscal agent for Development Company Finance LLC - the entity responsible for marketing and selling 504 funding securities - commented following the February bond sale:

“Fed's Rate Dilemma - a slightly improved debenture rate for February belies the market turmoil and uncertainty that required a 14 bps wider spread to benchmark Treasuries than in January. In the days leading up to pricing, Treasury rates rose 14 bps and then rose another 14 bps the next day after another very strong jobs report.

“Investors spent 2014 playing catch-up to a market rally that defied forecasts and then saw January continue that trend. To say they are wary is a gross understatement and is reflected in their approach to our February sale since higher rates are expected, and that induces caution.

“The best three-month stretch of job hiring since 1997 should lead to wage growth, which should increase consumer spending, which should result in higher inflation, which should trigger a Federal Reserve rate hike. But, when?

“Offsetting considerations for an expected rate increase this summer continue to be geopolitical issues in Ukraine and Greece plus a deflationary euro zone economy with double digit unemployment. What it means for our debenture issuance is continued, historically low rates that investors measure with restraint as the Fed ponders its decision,” Keane said.

For small business owners looking to expand and modernize their operations through the purchase of major fixed assets, the SBA 504 Loan Program offered through Florida First Capital provides up to 90% below-market, fixed interest rate financing with repayment terms up to 20 years for the purchase of commercial property and/or fixed heavy duty machinery and equipment.

504 loans are paired with private-sector commercial loans, providing up to $5 million of small business financing for standard and public policy projects and up to $5.5 million per green initiative and small manufacturer projects (these are SBA loan portions only; there is no limit on overall project dollar size).

Click here to get started on a 504 Loan

For more information about SBA 504 loans in Florida,contact a Florida First Capital Loan Officer hereor email us atinfo@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.