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SBA 504 Loan Interest Rate Report: April 2017

Apr 2017

While rates have been slowly increasing over the past six months, the bonds that funded April's 20-year Small Business Administration (SBA) 504 loans saw a 20 basis point drop this cycle, keeping the resulting effective interest rate (the all-in cost to a borrower) still at a near low historical level.

504 loans are funded by the sale of bonds (aka debentures) which are pooled and sold on Wall Street each month. Understanding the 504 Loan Interest Rate

The bonds that funded this month's 20-year 504 loans were sold to investors at 2.84%, resulting in a final effective interest rate of 4.62% for April for standard 504 loans (compared to 4.82% in March). The 20-year effective interest rate for debt refinance loans is 4.66%.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 4.81% for March/April. The 10-year effective interest rate for debt refinance loans is 4.86%.

Frank Keane, fiscal and selling agent for 504 funding securities, commented following the April bond sale:

“Risk Off- resulted in an eventful week that left markets basically unchanged, which is surprising. Rates seem range bound as market forces, Fed policy, and legislative gridlock compete for headlines.

“(The April debenture) priced at 2.84%, and a spread of +49 bps to the 10-year Treasury, 2017-20D was 20 bps lower than the March sale and just 3 bps higher than the December 2016 debenture, which priced prior to two Fed rate hikes.

“... (T)he market anticipated the recent interest rate increases, but what is most impressive is that small business borrowers now are locking in 20-year fixed-rate 504 loans just 63 bps above the Prime Rate.

“Continued geopolitical tensions in Syria and North Korea combined with President Trump's flip-flopping on security and domestic issues kept investors confused on where U.S. leadership is headed. Confusion almost always helps bond yields move lower,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms for the purchase of major fixed assets, such as owner-occupied commercial real estate and/or heavy duty machinery and equipment.

504 loans are paired with private-sector commercial loans and provide up to $5 million for standard and public policy projects (aggregate limit) and up to $5.5 million per green initiative and small manufacturer project. These are SBA 2nd mortgage loan portions only; there isno limiton overall project dollar size.

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