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SBA 504 Loan Interest Rate Report: June 2015

Jun 2015

The interest rate for 20-year Small Business Administration (SBA) 504 loans that funded in June saw another slight increase over past recent months and moved back into the low 5% range for the first time since September of 2014. Frank Keane, fiscal agent for Development Company Finance LLC - the entity responsible for marketing and selling 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. The effective interest rate - the rate borrowers pay - is comprised of the bond rate (pegged to an increment above the current market rate for U.S. Treasury issues), which is converted to the note rate, plus ongoing carrying costs of the program as set by the SBA.

The bonds that funded this month's 20-year 504 loans were sold to investors at 2.98%, marking the thirteenth month in a row the bond rate has remained below 3%. This resulted in a final effective interest rate (the all-in cost to a borrower) of 5.06% for June (compared to 4.85% for May and 4.59% in April). Year to date, the 20-year rate has averaged 4.74%.

The effective interest rate for 10-year 504 loans (which is set bimonthly) is 4.37% for May/June (compared to 4.40% for March/April). Year to date, the 10-year rate has averaged 4.39%.

Frank Keane, fiscal agent for Development Company Finance LLC - the entity responsible for marketing and selling 504 funding securities - commented following the June bond sale:

“Still under 3%, but rising - Since recovering from the “taper tantrum” that began in the summer of 2013, causing rates to rise, we have priced 20-year debentures below 3% for thirteen consecutive months; by the slimmest of margins last week.

“There has been no policy change from the Federal Reserve Bank (though [the June 18] FOMC announcement may provide some clues about that), but the move has been most influenced by Europe. Greece remains the prominent issue as its government is reluctant to continue austerity measures tied to bailout loans from the IMF. This stance threatens a possible default on its debt, as well as its inclusion in the European Union and its currency.

The result has been turbulence in peripheral euro zone debt with German bond yields rising almost 100 bps before recovering last week. That move made $U.S. denominated debt less attractive to investors. While the Fed is not expected to change policy now, (the June 18) meeting is the last one before they are expected to do so in September, unless something unusual happens; and unusual seems to be a constant of late,” Keane said.

The SBA 504 Loan Program provides up to 90% below-market, fixed interest rate financing with repayment terms up to 20 years for the purchase of commercial property and/or fixed heavy duty machinery and equipment.

504 loans are paired with private-sector commercial loans, providing up to $5 million of small business financing for standard and public policy projects and up to $5.5 million per green initiative and small manufacturer projects (these are SBA loan portions only; there is no limit on overall project dollar size).

Get Started on an SBA 504 Loan

For more information about SBA 504 loans in Florida,contact a Florida First Capital Loan Officer hereor email us atinfo@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.