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SBA 504 Loan Interest Rate Report: May 2014

May 2014

The effective interest rate for 20-year Small Business Administration (SBA) 504 loans that funded in May continued to fall toward the flat 5% mark while the 10-year bimonthly rate for May/June held steady in the mid 4% range.

The debenture bonds that funded this month's 20-year 504 loans were sold to investors at 3.00%, resulting in a final effective interest rate of 5.08% (compared to 5.19% in April, which then was the lowest since June 2013). Year to date, the 20-year rate has averaged 5.28%.

For 10-year 504 loans, the debenture bonds were sold at 1.98%, resulting in a final effective interest rate of 4.50% for May/June (compared to 4.48% for March/April). Year to date, the 10-year rate has averaged 4.55%.

Both the 20- and 10-year SBA 504 interest rates are fixed for the term of the loan and require as little as a 10% borrower down payment.

504 loans are funded by the sale of debentures (or bonds) which are pooled and sold on Wall Street each month. The effective interest rate - the rate borrowers pay - is comprised of the debenture rate (which is pegged to an increment above the current market rate for U.S. Treasury issues), the note rate and ongoing carrying costs of the program as set by the SBA.

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

“Lower rate, tighter spread - is the same header as last month as the 20-year May debenture sale saw both categories continue to improve with a slight uptick in rate for the 10-year issue. Inconsistent economic data and an escalated Russian presence in Ukraine have capped interest rates for now.

“Additional support has come from pension funds whose adherence to new rules is expected to create $300 billion in extra demand over the next two years, an amount that represents half of the outstanding, current supply of 30-year Treasuries. Pension plans, which oversee $16.3 trillion, are shifting their assets from equities to long-term debt to better match their liabilities. This does not mean that long-term rates will not rise, but it does reflect a natural substitute for the Fed's QE 3 program that is winding down,” Keane commented.

For small business owners looking to expand and modernize their operations through the purchase of major fixed assets, the SBA 504 Loan Program offered through Florida First Capital 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 projects and up to $5.5 million for green initiative and small manufacturer projects (these are SBA loan portions only; there is no limit on overall project dollar size).

Get Started on a 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.