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SBA 504 Loan Interest Rate Report: September 2018

Sep 2018

The bonds that funded September's 20- and 25-year Small Business Administration (SBA) 504 loans decreased over recent months, keeping the effective interest rate (the all-in cost to a borrower) in the lower 5% range. More Fed rate hikes, however, are on the horizon.

The bonds that funded the 25-year 504 loans were sold to investors at 3.65%, resulting in a final effective interest rate of 5.29% for September for standard 504 loans (compared to 5.35% in August and 5.32% in July). The 25-year effective interest rate for debt refinance loans is 5.33% for September.

The bonds that funded the 20-year 504 loans were sold to investors at 3.53%, resulting in a final effective interest rate of 5.25% for September for standard 504 loans (compared to 5.30% for August and 5.25% for July). The 20-year effective interest rate for debt refinance loans is 5.29% for September.

The bonds that funded the 10-year 504 loans were sold to investors at 3.14%, resulting in a final effective interest rate of 5.25% 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 5.30% 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 September 6 bond sale:

“There was talk of increased tariffs on Chinese goods, no progress on NAFTA talks with Canada, a strong employment report that reflected solid wage growth, and the SBA 504 Loan Program had successful sales totaling $351,675,000.

“The tech heavy NASDAQ market suffered the most from the tariff talk, dropping 2.6% on the week as it would be more affected by China supply issues. The … benchmark 10-year Treasury weakened on Friday (October 7) after the jobs report showed 201,000 new jobs in August; an unchanged unemployment rate of 3.9%; private sector wage growth of 2.9% y/y, the best growth rate in 9 years; and … initial jobless claims are at their lowest level since 1969.

“It was the wage growth component that best supports the Fed's objective of gradual rate increases as increased wages in a tight labor market are believed to be a precursor to inflation, pushing yields higher on the week. With that in mind, the market assigns a 99% probability of a 25 bps rate increase on September 26, and a 74% probability of another hike after the December 19 meeting.

“The September debenture sales for the 504 program included its third, and largest 25 year debenture ($58,273,000), priced at a rate of 3.65% and an ongoing Effective Rate to small business borrowers of 5.29%, just 29 bps above Prime Rate,” 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.