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SBA 504 Loan Interest Rate Report: March 2017

Mar 2017

The bonds that funded March's 20-year Small Business Administration (SBA) 504 loans saw an uptick in pricing in anticipation of the Fed's recent rate hike, ending a nearly three-year consecutive run below 3%. Rates have been slowly rising over the past six months. However, amid the increases this month's resulting effective interest rate (the all-in cost to a borrower) is still at a relatively low historical level.

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 3.04%, resulting in a final effective interest rate of 4.82% for March for standard 504 loans (compared to 4.60% in February). The 20-year effective interest rate for debt refinance loans is 4.86%.

The effective interest rate for 10-year standard 504 loans(which is set bimonthly) is 4.81% for March/April. The 10-year effective interest rate for debt refinance loans is 4.86%.

Frank Keane, fiscal and selling agent for 504 funding securities, commented following the March 9 bond sale:

“Markets Move Ahead of the Fed - Stronger-than-expected labor market data pushed U.S. interest rates higher in anticipation of a Fed rate hike (which occurred on March 15). In reaction to, and anticipation of, stronger data releases, U.S. Treasury yields rose.

“The benchmark 10-year note yield settled at 2.57% late on Friday (March 10). On Thursday (March 9 when 2017-20C was priced), it reached 2.60%, edging out the high from last Dec. 16. A move above 2.61% would take the yield back to the September 2014 high.

“Amid rising rates, the SBA 504 20-year debenture rate in March was set at a still relatively low historical level, and featured one of the larger pools ($333 million) in some months. At 3.04%, 2017-20C was near the April 2014 level (3.11%), but still delivered an effective interest rate to small business borrowers of 4.82%,” Keane said.

Two more Fed interest rate hikes are expected this year.

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.