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SBA 504 Loan Interest Rate Report: December 2017

Dec 2017

The bonds that funded December's 20-year Small Business Administration (SBA) 504 loans priced at 1 basis point lower than last month, which was the third lowest of the year, keeping the resulting effective interest rate (the all-in cost to a borrower) firmly under 5%. That, however, could change with the Fed's recent interest rate hike.

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 2.78%, resulting in a final effective interest rate of 4.49% for December for standard 504 loans (compared to 4.51% in November and 4.56% in October.). The 20-year effective interest rate for debt refinance loans is 4.54% for October.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 4.38% for November/December. The 10-year effective interest rate for debt refinance loans is 4.44% for November/December.

Note: For FY 2018, programfeespaid on Small Business Administration (SBA) 504 loanshave decreased. The changes are applicable only forloans approved on or after Oct. 1, 2017, through Sept. 30, 2018 (not those that are funded after Oct. 1; see Official Monthly 504 Interest Rates).

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

“It was no surprise that the FOMC raised short-term rates by 25bps … creating a new band of 1.25-1.50% that further flattened the U.S. Treasury curve (short-term rates rose while longer-term rates did not). Along with cash rich investors seeking quality assets, this reshaping of the Treasury curve has benefitted small business borrowers using the SBA 504 program.

“Expectations are for the FOMC to raise rates three times in 2018 and many analysts believe the curve may flatten further. While that has been beneficial for 504 borrowers, there could be a point where pricing spreads may widen due to the technically expensive benchmark Treasury.

“At her final press conference on Wednesday, Janet Yellen laid out the Committee's expected path for year-end short-term rates: 2018 - 2.1%; 2019 - 2.7%; and 2020 - 3.1%. She also expects ‘some market lift' to GDP growth from the proposed tax changes,” 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.

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 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.