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SBA 504 Loan Interest Rate Report: July 2018

Jul 2018

The bonds that funded July's 20-year Small Business Administration (SBA) 504 loans saw a slight drop over last month, keeping the effective interest rate (the all-in cost to a borrower) in the lower 5% range. Also, the much anticipated 25-year debenture option made its debut this month.

The bonds that funded the 25-year 504 loans were sold to investors at 3.68%, resulting in a final effective interest rate of 5.32% for July for standard 504 loans. The 25-year effective interest rate for debt refinance loans is 5.36% for July.

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

The bonds that funded the 20-year 504 loans were sold to investors at 3.54%, resulting in a final effective interest rate of 5.25% for July for standard 504 loans (compared to 5.32% for June). The 20-year effective interest rate for debt refinance loans is 5.30% for July.

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 July 5 bond sale:

“Trade tensions continue to dominate markets, keeping stocks in check and Treasury debt well bid in a risk-off trade that further flattened the Treasury curve by 12 bps since the 504 program priced 2018-20F on June 7.

“The impact on financial markets is most evidenced in products like the benchmark 10-year Treasury note, which continues to attract buying interest as a safe-haven trade. It ended the week (of July 9) at 2.83%, virtually unchanged week to week, and 14 bps lower than when the Fed last raised rates on June 13. Continued demand for it was seen in last week's $22 billion auction where 67% of the awards went to indirect/foreign bidders.

“This was the strongest of Treasury's three term auctions and further flattened the 2/10 curve; flatter at +25 bps from +98 bps at this time last year. Further evidence of this skewed demand was the tepid reception for last week's $33 billion three-year note that was positioned primarily by dealers.

“It's not just outright buying of 10-year Treasuries that is driving this trend; the volume of trades in 10-year call options, which benefit when yields fall, has risen as investors seek insurance over worries about escalating trade friction. Over 7.7 million of these contracts traded in June, providing protection against falling yields.

“Positions in Treasury futures contracts, another way for portfolio managers to protect against lower yields, are near the all-time high set earlier this year. Taken together, this trend reflects market concern should proposed tariffs actually be put in place,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and amortization terms now up to 25 years 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 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 is no limit on 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.