The Small Business Administration’s (SBA) 504 loan program is providing long-term, fixed-rate financing for commercial real estate and the purchase of long-term capital assets at the lowest interest rates since the program’s inception. The debentures that funded this month’s 20-year 504 loans were sold to investors at an interest rate of 2.85%, below the previous low of 3.88% in June 2010. The 10-year loan debentures were sold at an interest rate of 1.53%, eclipsing the previous low of 1.81% in November 2010.
The official interest rates should be published by September 12, but it is expected that the low rates for the debenture sales this month will result in estimated effective interest rates for small business borrowers – including servicing fees – of only 4.69% for a 20-year loan. For a 10-year loan, the estimated effective interest rate is a low 3.75% for September.
The SBA’s 504 loan program provides long-term, fixed-rate financing for small business owners nationwide. Since the program’s inception, 504 loans have funded over $62 billion in loans to over 130,000 small businesses. In turn, those small businesses have created or retained over 2.1 million jobs for the U.S. economy. Certified Development Companies (CDCs) continue to work with small business owners who are taking advantage of these record-low interest rates to purchase, build and expand their facilities or purchase capital-intensive machinery and/or equipment.
SBA 504 loans are designed to cover up to 40% of a project’s costs with a maximum of $5 million in funding; however, the CDC partners with a bank that provides 50% of the project financing and the borrower typically puts in 10% as a down payment.