In April 2018, the U.S. Small Business Administration (SBA) made available 504 loans with a 25-year maturity. The self-amortizing loan complimented the 10- and 20-year 504 loans that were available at the time. By expanding the 504 options to include a 25-year loan, SBA expected that the longer term would decrease monthly payments for borrowers while providing them with more cash flow.
Recall that the 504 program provides long-term, fixed-rate financing for owner-occupied commercial real estate and for the purchase of long-term capital assets. SBA 504 loans are designed to cover up to 40% of a project’s costs with a maximum of $5 million in funding. The SBA portion previously had a 20-year term and amortization, which has now been increased to 25 years.
The introduction of the 25-year maturity 504 loan was a huge hit, with nearly all 504 borrowers electing the longer term. Since its introduction, over $1 billion of 25-year 504 loans have been approved. Low interest rates have helped the new program gain traction, as interest rates on the 25-year 504 loan have dropped from 3.68% at inception to 3.45% today.