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SBA 504 Loan Interest Rate Report: October 2018

Oct 2018

The bonds that funded October's 20- and 25-year Small Business Administration (SBA) 504 loans increased over last month, but the resulting effective interest rate (the all-in cost to a borrower) declined thanks to reduced loan servicing fees for FY 19 that went into effect Oct.1.

For standard 504 loans, the servicing fee (paid annually) was reduced from 0.642% (or 64.2 basis points) to 0.368% (or 36.8 basis points) of the outstanding balance of the loan. For refinance 504 loans, the servicing fee (paid annually) was reduced from 0.682% (or 68.2 basis points) to 0.395% (39.5 basis points) of the outstanding balance of the loan.

The bonds that funded the 25-year 504 loans were sold to investors at 3.89%, resulting in a final effective interest rate of 5.21% under the new fee schedule for October for standard 504 loans (compared to 5.29% in September and 5.35% in August). The 25-year effective interest rate for debt refinance loans is 5.24% for October.

The bonds that funded the 20-year 504 loans were sold to investors at 3.77%, resulting in a final effective interest rate of 5.15% under the new fee schedule for October for standard 504 loans (compared to 5.25% for September and 5.30% for August). The 20-year effective interest rate for debt refinance loans is 5.19% for October.

The bonds that funded the 10-year 504 loans were sold to investors at 3.14%, resulting in a final effective interest rate of 4.84% under the new fee schedule for 10-year standard 504 loans for September/October (set bimonthly; compared to 5.30% for July/August and 5.29% for May/June). The 10-year effective interest rate for debt refinance loans is 4.88% for September/October.

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 October 11 bond sale:

“The previous week's increase in rates reversed itself, only after sending US stock markets down 4.1% for the week, and that is after a Friday rally of 1.4%.

“Adding to (ongoing) rate concerns, the Fed is shrinking its balance sheet and the ECB is expected to end its QE program at year-end.

“The safe-haven rally in Treasuries was relatively modest as stock prices tumbled. Ordinarily, such a rout in equities would produce a more significant move to lower yields, but that trade is being tempered by expectation of higher rates and trade tensions.

“That 7 bps weekly decline in the 10 year UST rate did assist the SBA 504 program to price its October debentures at 3.77% and 3.89%, for its 20 and 25 year issues respectively.

“In addition to the successful (debenture) sales, last week's supply of debt saw good demand with as much as 65% of Treasury's 10 and 30 year issues going to indirect/foreign bidders,” Keane said.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms up to 25 years for the purchase of major fixed assets, such as owner-occupied commercial real estate, energy efficient “green” initiatives 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.