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Just When We Thought SBA 504 Loan Interest Rates Couldn't Get Much Lower …

Aug 2019

August's debenture rates for the Small Business Administration (SBA) 504 Loan Program dropped yet again, continuing to produce absolutely remarkable effective interest rates for small business borrowers. Of course the big question remains: where's the bottom? Frank Keane, fiscal and selling agent for SBA 504 program funding securities, provides some insight.

The 504 interest rate fall began 2 months ago. This month, interest rates for all 504 loan maturities - 10-, 20- and 25-years - are now in the 3.6% range.

The 25-year rate for standard 504 loans that funded in August is 3.63% and 3.66% for refinance loans. The 20-year rate for standard 504 loans fixed at 3.53% and 3.56% for refinance loans. The 10-year rate for standard 504 loans for July/August (set bimonthly) is 3.93% and 3.97% for refinance loans.

SBA 504 loan debenture rates have plunged over 1 percentage point in just 6 months. Debenture rates closely track the 10-year T-note yield, which has been in a sharp downward move.

“In this cycle, many of the old rules seem gone to the wayside. Over $16 trillion of global government bond yields are negative. Despite the plunge in Treasury yields, US bonds post the most attractive (and still positive) yields of any advanced economy,” said Frank Keane, fiscal and selling agent for SBA 504 program funding securities.

“Investors seem resigned to the possibility that US yields might turn negative in the next recession. The rush into positive-yielding US bonds has neutralized the spread-widening impact that an inverted yield curve and higher expected market volatility typically has on mortgage-related bonds such as SBA 504,” he said.

“Also, SBA 504 effective rates are sharply lower than the Prime Rate despite the Fed rate cut in July. We expect SBA 504 debenture rates to remain relatively low although subject to corrections higher as events play out,” 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, renovations, new construction, energy efficient “green” initiatives and/or fixed heavy duty machinery and equipment, as well as the refinance of commercial mortgage and other business debt with or without a cash-out option.

Under a typical 504 loan structure, a commercial lending partner provides financing for 50% of the 504 loan and takes a first lien position; Florida First Capital/SBA provides 40% of the project financing and takes a second lien position; and the borrower provides a down payment of just 10% in most cases.

504 loans 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/First Capital Finance Loan Officer or email us at info@ffcfc.com. Phone: 850.681.3601 or toll-free at 800.504.LOAN.