The September 2022 rates for SBA 504 Loans are higher than they were last month, a trend consistent with recent federal interest rate hikes. SBA 504 rates and the 10-Year Treasury have followed a similar track historically. Therefore, given that the 10-year treasury yield is increasing along with the Treasury discussing increasing the federal funds rate, it’s no surprise we’re seeing higher SBA 504 interest rates. Read more …
September 2022 Rates for SBA 504 Loans
- 25-Year: 5.44%
- 20-Year: 5.34%
- 10-Year: 5.32%
The increase in rates highlights a crucial benefit of the SBA 504 Loan Program…locking in today’s fixed rates for a long loan term (up to 25 years). Here are four reasons why the SBA 504 Loan Program is crucial when interest rates are on the rise.
Four Reasons Why the 504 is Crucial When Interest Rates are Rising
1. Fixed Rates and Long Loan Terms
Conventional loan rates are typically only fixed for a certain period of time, usually 3-10 years. After that, the rate is reset and could become variable. In a rising rate environment, that means you could find yourself with a much higher rate in the future. Conversely, one of the biggest benefits of an SBA 504 loan are the low, fixed interest rates and long loan terms. Since the loan is government-backed, the rates and fees on an SBA 504 loan are a lot lower than what you’re likely to find with a conventional loan. In a nutshell, SBA 504 rates are tied to the bonds that are sold to institutional investors, and the interest rates are typically reflective of 10-year U.S. Treasury bond rates, which are long-term, fixed-rate assets.
What this really means for you as the borrower is that through the SBA 504 program, you secure long-term, fixed-interest rates that are extremely competitive (often at or below prime). When you factor in the longer repayment terms (up to 25 years) and the reduced owner-equity requirement (usually 10% for SBA 504), it’s hard to find a better option anywhere.
It’s no secret that when interest rates rise, banks charge more for business loans. Therefore, small businesses will likely flood to the SBA 504 loan program to either refinance their variable rate loans or to lock in today’s low, long-term fixed rate as a smart way to finance their expansion plans. The 504 offers a great opportunity for fixing occupancy costs well into the future.
2. Down Payment Requirements
For businesses looking to protect their cash flow, or facing tighter cash flow because of higher interest rates, the SBA 504 offers another advantage. Down payments as low as ten percent. This amounts to huge cash savings as most conventional loans require 20%, or even up to 35%, down.
3. Balloon Payments and Call Provisions
A balloon loan mortgage, common in commercial real estate, is usually a short mortgage that requires a large one-time payment at the end of the term. This can mean your payments are lower in the years before the balloon payment comes due, but you will either owe a lump sum at the end or be required to refinance the balance. This can lead to another round of building appraisals and credit approvals to endure. However, unlike conventional commercial real estate loans, a 504 Loan has no balloon payments.
Call provisions are similar to balloon payments in that, with a conventional loan, you may be required to maintain a specific debt-service coverage ratio as a way for lenders to lower their risk. If you fail to meet that provision, the bank can “call in” your loan. This means you would either have to pay off the balance, or refinance it. The SBA 504 Loan Program has no covenants or call provisions either. What you get is a long-term, fixed rate loan offering secure, predictable monthly payments for the life of the loan.
4. Closing Costs, Soft Costs and Other Fees
All loans come with closing costs, which include appraisals, loan origination fees, etc. These expenses can add up quickly. Conventional financing typically requires all closing costs to be paid upfront, but SBA 504 loans allow you to roll them into the loan, thus preserving your cash. Not to mention, if you are expanding your business, the cost of equipment, furniture and fixtures, parking lots, architectural fees, etc. can also be rolled into the loan, saving you even more.
Most Businesses Qualify
Most for-profit businesses are eligible to receive SBA 504 financing, so long as they average less than $5 million in annual after-tax profits and $15 million in net worth. Additionally, most national, regional, and community banks participate in the program…
Typical 504 borrowers:
|Doctor’s Office||Restaurants||Recycling Facilities||Bowling Alleys|
|Veterinarian Offices||Retail Stores||Food Manufacturing||Funeral Homes|
|Dentists||Health Clubs||Steel Production||Car Washes|
|Attorneys||Day Care Providers||Packaging Companies||Assisted Living|
|Accountants||Pet Care Services||Commercial Printers||Grain Elevators|
|Chiropractors||Farmers Markets||Machine Shops||Livestock Feedlots|
|Architects||Boutiques||Freight & Transport||Mini-Storage|
|Graphic Designers||Auto Repair Shops||Wholesalers||Sports Arenas|
|Physical Therapists||Convenience Stores||Mass Production||Tennis Clubs|
Funds from a 504 loan can be used for:
- Acquisition of real estate (land and buildings)
- Acquisition of equipment
- Construction and renovation costs
- Soft costs – the ability to include furniture, fixtures, and fees
- Refinancing conventional loans
There is no limit to the total project cost with a 504 Loan. The SBA portion (40 percent of the total project cost) is capped at $5,000,000 or $5,500,000 for manufacturing projects or projects that implement green efficiencies.
Sometimes it takes a big investment of resources to jump start growth for a small business. Maybe there’s special equipment that could increase productivity. Or, a building next door that would make a perfect addition to an existing shop. Or, maybe an existing facility needs a serious face-lift. In each of these cases, an SBA 504 loan could be the perfect business financing solution. These loans are available to for-profit businesses to purchase real estate, equipment, and machinery. They can also be used to refinance existing commercial mortgage debt or to remodel existing facilities. SBA 504 loans are very business-friendly, requiring a down payment of typically just 10% and offering 10- to 25-year terms with low, fixed interest rates.
Want to Learn More?
Keep in mind, we work in conjunction with local banks…not in competition with them.
Why Growth Corp? We know small business. It’s our passion. We are proud to have helped thousands of businesses facilitate expansion. As the largest 504 Lender in Illinois, we have dedicated ourselves to making the 504 Loan Program as efficient and seamless as possible. In addition, we are an authorized Continuing Professional Education sponsor and can provide you with C.P.E. credits for our SBA 504 Loan Program update course.
Let’s join forces! Make Growth Corp your partner in helping businesses discover the very best solution to their expansion or refinancing concerns…the 504 Loan Program. If you want to learn more, we would be happy to meet with you. Just give us a call at (217) 787-7557 or contact any member of our Lending Team.