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January SBA 504 Loan Interest Rate Report: Rates Continue to Fall

Jan 2015

The New Year started out with continued good news for borrowers of Small Business Administration (SBA) 504 loans that funded in January as interest rates continued to decline into the mid 4% range.

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 2.52%, marking the eighth month in a row the bond rate has stayed below 3%. This resulted in a final effective interest rate (the all-in cost to a borrower) of 4.60% for January (compared to 4.78% in December and 4.87% in November).

For 10-year 504 loans (which are set bimonthly), the bonds were sold at 1.89% (the lowest since November 2013), resulting in a final effective interest rate of 4.41% for January/February (compared to 4.55% for November/December and 4.69% for September/October).

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

“Rally Redux - as the rates market began reacting to stranger domestic economic news, the long anticipated path to higher rates was reversed by oil continuing its 50% slide in value, the Russian ruble halving its value as that country's dependence on oil exports asserted itself, the euro zone in confirming it is in a deflationary period, and now Greece possibly abdicating its ECB mandated austerity program if the opposition party wins the January 25 election. The effect of that victory could mean Greek bond defaults and an attempt to cease using the unified EU currency; two very troublesome issues whose risk can far outweigh the benefits of this low rate environment that we enjoy.

“This geo-political influence helped us price the 20-year series at the lowest (bond) rate since June 2013, a time referred to as the ‘taper tantrum,' when the market was reacting to comments about the Fed ending QE3. Well, that program did end with little negative impact on rates, and the repeated call for higher rates continues to be incorrect.

“A global economic malaise lingers and the U.S. economy alone cannot pull Europe from its recession and prospects aren't helped by a slowdown in China where reduced demand for commodities is affecting countries that are dependent on their export. And now (the recent) report on Retail Sales came in much weaker than expected with a downward revision to last month. This just piles on to the extended slide in commodity prices that has reduced the rate on 10-year Treasuries by 21 bps since we priced (on Jan. 8) and adds pressure to central banks to draw on their limited tools to combat this global slowdown.

“Lastly, while fundamentals for commodities are practically screaming “buy,' something that would halt this selloff, most traders think of that as ‘catching a falling knife' and prefer to wait for more signs of stability before committing to the market. So, we wait for that to happen while rates continue to decline and global growth weakens,” 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.