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SBA 504 Interest Rates Update: December 2021

Dec 2021

Small Business Administration (SBA) fixed interest rates for 25-year term loans broke into the low 3% range this month, while interest rates for 20- and 10-year term loans remain below 3%. With new, decreased program fees in effect and interest rates still at historically low levels, it is unquestionably an incredible time for small business borrowers to purchase or refinance commercial real estate.

• The December 25-year effective fixed interest rate for standard 504 loans is 3.026% and 3.040% for refinance loans.
• The December 20-year effective fixed interest rate for standard 504 loans is 2.880% and 2.894% for refinance loan
• The 10-year effective fixed interest rate for standard 504 loans is 2.793% and 2.810% for refinance loans (set bimonthly).

Steve Van Order, selling agent for the SBA 504 Loan Program, commented following the December bond sale:

It’s Not Just Benchmark Rates

“The SBA 504 program priced its December debentures Thursday (Dec. 9) in a market affected by the Omicron variant, inflation fears, and an expected change in Fed policy. Since the November sale, the benchmark ten-year Treasury is little changed; what has changed is the slope of the 2/10 Treasury curve that is flatter by 25 bps as the market is expecting rate hikes following the Fed’s announced plan to reduce its bond buying. That change makes investors more cautious and to compensate pricing spreads in the A CMBS market have widened.”

“In response to an inquiry, Van Order identified the cause of this move:

• Level of T10 yield was about the same; positive.
• Yield curve is trending flatter; negative.
• Negative expected and actual rates volatility; negative.
• Interest rate spreads wider; negative.
• Heavy seasonal issuance; negative.

“So, the result was pricing spreads had to widen to compete with other products in the market, yet.” Van Order added, “Compared to history, the widening of 8 bps m/m to swaps wasn’t much. The last time the curve was this flat, in January 2020, the 25yr SBAP spread to swaps was double what it is now, and the coupon was 2.45%.”

“At $504,103,000, the December sale continues the program’s recovery from the drop off in October 2020 resulting from the previous month’s record sale signaling the end of P&I forgiveness from Section 1112. Recent months have seen irregular issuance amounts, but the twelve-month average is $480MM with an average 25-year debenture rate of 1.554%. Finally, with the reduced FY2022 borrower fee, the 2021-25L Effective Rate for small business borrowers was 3.026%, well below prime,” Van Order 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.

504 loans are paired with private-sector commercial loans and 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 Georgia, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.