{meta_title}

SBA 504 Loan Interest Rate Report: August 2018

Aug 2018

The bonds that funded August's 20- and 25-year Small Business Administration (SBA) 504 loans held steady over last month, keeping the effective interest rate (the all-in cost to a borrower) firmly in the lower 5% range.

The bonds that funded the 25-year 504 loans were sold to investors at 3.71%, resulting in a final effective interest rate of 5.35% for August for standard 504 loans (compared to 5.32% in July). The 25-year effective interest rate for debt refinance loans is 5.39% for August.

See: SBA Launches 25-Year Term Option for 504 Loans

The bonds that funded the 20-year 504 loans were sold to investors at 3.58%, resulting in a final effective interest rate of 5.30% for August for standard 504 loans (compared to 5.25% for July and 5.32% for June). The 20-year effective interest rate for debt refinance loans is 5.35% for August.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 5.30% for July/August. The 10-year effective interest rate for debt refinance loans is 5.36% for July/August.

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

Frank Keane, fiscal and selling agent for SBA 504 program funding securities, commented following the August 9 bond sale:

“As we approach(ed) the August debenture sales for the 504 program, we (saw) some backup in benchmark rates as the market prepare(d) to absorb the Treasury's August refunding.

“Last week (of Aug. 6) was quiet in the financial markets until Friday when the Turkish lira fell 13%. The currency is now down 40% for the year. As the lira fell, President Trump inflamed the crisis via his Twitter account when he threatened Turkey with tariffs. This boosted fear a bit in the broad financial markets and U.S. Treasuries benefited from a flight to quality. The benchmark 10-year note yield fell 8 bps on the day and 10 bps on the week, to end at 2.85%. Earlier in the week, Treasury completed its quarterly refunding of $78 billion in notes and bonds.

“The SBA 504 loan program priced its second 25-year debenture (on Aug. 9) at a rate of 3.71%, representing a 5.35% ongoing effective (interest) rate for small business borrowers. This was part of a $373,572,000 sale consisting of $344,334,000 in 20-year debentures and $29,238,000 in 25-year debentures.

“Treasury rates remain stable, still maintaining asafe-havenidentity amidst trade tensions and sanctions.

“(The) National Federation of Independent Business (reports) no acceleration in selling prices, indicating there is limited exposure to increased inflation. The maintenance of full employment with an approximate 2% rate of inflation should keep the Federal Reserve Bank on target for its next rate increase, probably next month,” 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-occupiedcommercial real estate, energy efficient “green” initiativesand/or heavy dutymachinery and equipment.

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 isno limiton overall project dollar size.

For more information about SBA 504 loans in Alabama, Florida or South Georgia,contact aFlorida First Capital Loan Officeror email us atinfo@ffcfc.com. Phone: 850.681.3601 or toll-free at 800.504.LOAN.