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Rate Drop: April 2015 SBA 504 Loan Interest Rate Report

Apr 2015

The effective interest rate for 20-year SBA 504 loans that funded in April declined and is expected to remain at near-historic lows for the near future to the continued benefit of long-term small business borrowers.

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 2.51%, marking the eleventh 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 4.59% for April (compared to 4.79% in March). Year to date, the 20-year rate has averaged 4.63%.

The effective interest rate for 10-year 504 loans (which is set bimonthly) is 4.40% for March/April.

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

“Fed Policy vs. Reality - Last month's commentary asked if we were headed for higher rates and the market's answer has been no, at least not right away. All it took was an unexpectedly low Non-Farm Payroll report that added to weak wage growth, low inflation and a fragile world economy as reasons for the Fed to be more deliberate about raising rates.

“Mention was also made of how cheap our domestic yields are compared to European government bonds and a recent issue from Switzerland emphasized that quality when they sold a 10-year bond at negative 0.055%. Essentially, investors are paying the Swiss government to hold their money at less than cost for 10-years.

“Barring a jolt from inflation, the probability of a rate hike in June is diminished with focus now settling on September or December. When the Fed does take action, the impact will be mostly felt in shorter-dated maturities as global investors will continue to find value in longer dated, dollar denominated securities because of their relative value.

“So, while we await that change in monetary policy, borrowers do benefit from these elevated market levels as this month's debentures were priced 25 bps lower than our 12-month average,” Keane said.

The SBA 504 Loan Program 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).

Get Started on an SBA 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.