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SBA 504 Loan Interest Rate Report: July 2017

Jul 2017

The bonds that funded July's 20-year Small Business Administration (SBA) 504 loans saw a 17 basis point increase over last month. Despite the hike, the resulting effective interest rate (the all-in cost to a borrower) still remains under 5%. Is the trend of low rates coming to an end? Frank Keane, fiscal and selling agent for 504 funding securities, comments.

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 2.98%, resulting in a final effective interest rate of 4.76% for July for standard 504 loans. The 20-year effective interest rate for debt refinance loans is 4.80%.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 4.49% for July/August. The 10-year effective interest rate for debt refinance loans is 4.54%.

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

“The (July 4) holiday shortened week saw market sentiment continue to weaken as the impact of central banker comments heralding the end of easy money policies dominated activity.

“The slope of the Treasury curve (2/10's) steepened 8bps early in the week as longer-term rates rose faster than the front-end which is most affected by Fed policy.

“Upon returning from a long weekend, traders digested the minutes from the ECB's last policy setting meeting where policy makers believed that deflation risks had ‘largely vanished.' While they might believe deflation risk to be minimized, euro zone inflation at 1.3% is even lower than in the U.S., meaning both central banks are satisfied that their economies slow growth performance is sufficiently strong to manage with less support. Joining the central bank chorus is the Bank of France, whose spokesman said that ‘interest rates are set to rise.'

“Doing Well Enough- seems to capture economists' attitude about economic strength after Friday's Non-Farm Payroll report. At 222,000, it was stronger than forecast and showed a 0.1% gain in the Unemployment Rate to 4.4% (more people joined the work force), as well as 0.1% gain in the Labor Force Participation Rate. Additionally, April and May reports were revised upward by 47,000. More solid employment data, but it was diluted somewhat by weaker than desired wage growth; at +2.5% y/y it is far below the 3% gains that workers enjoyed prior to the recession.

“Low inflation and wage growth are unlikely to move the Fed from its course of action - one more rate hike in 2017, and a reduction in its portfolio. We can expect more details on that plan after the next FOMC meeting on July 26.

“On (July 6), the SBA 504 Loan Program priced its July debenture sales. The upward trend in rate during this tightening cycle is confirmed by the 12-month averages (2.65% current average and 2.52% past 12 months average), but it is important to note that the July 20-year debenture represents a 4.76% effective cost of funds to small business borrowers,” 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 a Florida First Capital Loan Officer or email us atinfo@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.