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SBA 504 Loan Interest Rate Report: December 2016

Dec 2016

The bonds that funded this month's 20-year Small Business Administration (SBA) 504 loans again saw an uptick over the past few months; however, final effective interest rates continue to remain under 5% to the advantage of small business borrowers.

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 2.81%, marking the 31st consecutive month 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 December for standard 504 loans. The 20-year effective interest rate for debt refinance loans is 4.63%.

The effective interest rate for 10-year standard 504 loans (which is set bimonthly) is 4.35% for November/December. The 10-year effective interest rate for debt refinance loans is 4.40%.

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

“A quiet week in the rates market until Thursday (Dec. 8), when Mario Draghi announced an extension of the European Central Bank's Quantitative Easing program at the same time he announced a reduction in the principal amount of monthly bond purchases. The latter point won out as the market sold off towards its 2.50% support level, in anticipation of the FOMC's policy announcement (on Dec. 14).

“Investors have pulled $6.5 billion from bond funds in the last six-weeks and as of November 23, the spike in rates equaled $6.5 billion in unrealized losses for banks. This does not affect bank earnings and will be offset by increasing net interest income.

“(Our) 2016-20L was priced at 2.81%, +41 bps to Treasuries vs. the 12-month average of 2.33% at +56 bps. The Treasury curve continues its bear market steepening, having widened 14 bps in the last two weeks, to +133 bps,” 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 projects. 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 Florida,contact a Florida First Capital Loan Officeror email us atinfo@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.