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SBA 504 Loan Interest Rate Report: February 2017

Feb 2017

The bonds that funded February's 20-year Small Business Administration (SBA) 504 loans saw a slight 2 bps jump over last month. Rates have been slowly increasing since October, however continue to remain under 5% for the interim.

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 2.82%, marking the 33rd 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 4.60% for February for standard 504 loans. The 20-year effective interest rate for debt refinance loans is 4.64%.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 4.59% for January/February. The 10-year effective interest rate for debt refinance loans is 4.64%.

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

“Expected tax cuts and fiscal spending are driving stock and U.S. dollar values while putting a cap on any Treasury gains. Fulfilling these initiatives falls to Congress, not Presidential decree, and there is a question as to how long this will take.

“In the meantime, the Greek debt crisis has returned to form, a hard Brexit is yet to be defined, a possible Frexit is of concern if (France's) Marine Le Pen is victorious, and though there was good indirect bidding for (the week of Feb. 6's) $62 billion of Treasury debt, foreign investors are holding a smaller total amount of U.S. Treasuries.

“Also, it was mentioned (recently) that the Fed has policy options other than just raising rates, e.g. reduce the reinvestment of maturing bonds and P&I payments from its mortgage backed securities, something that James Bullard, President of the St. Louis Fed, mentioned in a (recent) speech. Taken together, these items identify global caution about buying U.S. government debt due to political uncertainty. At $5.64 trillion that amount is formidable but its 43% of outstanding supply is down from a 56% share in 2008.

“Though the Fed has projected three rate hikes this year, most analysts expect just two, probably occurring in June and December. Rate hikes alone aren't the only tools to influence policy, as the Fed could temper its current reinvestment policy to shrink its $4 billion balance sheet. It is expected to see $195 billion of Treasury debt mature in 2017 and is currently reinvesting that and proceeds from about $30 billion in monthly P&I payments on its mortgage backed bonds. Yes, Quantitative Easing still lives to some degree. In a footnote to a recent Janet Yellen speech, she admitted that the portfolio's duration has shrunk to 6 years, down from a 7.5-year duration four years ago,” 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 isno limiton overall project dollar size.

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