SBA’s newest term option for SBA 504 Loans, the 25-year term, has seen tremendous growth in its first year.

Almost a year ago (July ’18) we saw the first pooling of 25-year loans.  While no one knew what to expect at the onset, we’re pleased to report this longer term option has been very well received by the industry.  In fact, it hit a milestone of over $1 billion in fundings, according to the National Association of Development Companies (NADCO).  Touted as a welcome, longer-term, fixed asset funding solution for small businesses, the 25-year SBA 504 loan program has offered $1.04 billion in total lending dollars to date.  

In fact, SBA 504 volume is on the rise this year, with much credit being given to the availability of a 25-year term.  The 25-year interest rates have been incredibly low as well, with a 12-month average falling under 5%.  Currently, the 504 loan 20-year program is funding at a historically low rate of 3.983%.


How a 25-Year Term Will Help Me?

Many bankers and real estate brokers feel working with Certified Development Companies (CDCs) to secure a 504 loan for their clients is a win-win-win. The bankers reduce their risk and the real estate brokers make more and bigger sales with an increased pool of eligible borrowers. Plus, for small businesses, five more years to pay off the asset comes cheap; the 25-year option has an effective ongoing rate to the borrower that is only 0.15% higher than the 20-year 504 loan.  Check this out:


You can purchase your business property

    • buying allows you to control your monthly occupancy cost by managing your mortgage expensewhich accounts for a chunk of your business’ overhead.
    • the debut of 25-year terms allows you to keep this important expense low, stable and predictable
    • by buying a building with a long-term, fixed rate loan (versus renting), you’re not only controlling your monthly costs, you’re also removing risk
    • you’ll remove the risks of renting…everything from an un-renewed lease agreement to a souring landlord-tenant relationship


You can reduce your monthly loan payments by extending the payment cycle on an SBA 504 loan

    • the money you’ll be saving can be used to strengthen your business without having to take on additional debt to do so
    • preserving hundreds – or even thousands – of dollars in cash flow every month allows small business owners flexibility, which can be helpful, or in some cases essential, in dealing with the daily operations of a business


You can free up the ability to save

    • start a rainy-day fund, or
    • save for your next SBA 504 down payment
    • Fixed, lower payments also give you peace of mind, especially when you’re facing rising operating expenses and interest rates.



…an additional 60 months gives small business borrowers the opportunity for lower monthly payments, which can significantly help their cash flow



Why Did the SBA Make This Change?

Small businesses, the Certified Development Company industry and countless third-party lenders had been emphasizing the need for an affordable, fixed-rate instrument with a term-to-maturity more closely resembling other longer term mortgages.  According to then acting SBA Administrator, Linda McMahon, “This option for extending the payment cycle by an additional 60 months gives small business borrowers the opportunity for lower monthly payments, which can significantly help their cash flow. This increased flexibility in their loan terms will put them in a better position to manage their capital and face challenges like rising operating expenses.”



What’s Different About a 25-Year SBA 504 Loan?

Basically, there is nothing different about the structure of the 25-year term versus the 10- and 20-year terms except for the rate of repayment. The requirements, eligibility, funding and application process are all exactly the same.  The fee structure for 25-year SBA 504 loans is the same as the 20-year, and the voluntary prepayment penalty schedule stays the same, with no prepayment penalty after 10-years.

Here’s a quick summary of the program:

  • Used For: Owner-occupied land, buildings, improvements, construction & long-term equipment
  • Eligible Businesses: under $15 million in net worth or $5 million in net annual income
  • Available Amounts: typically $5 million (SBA portion), but can go up to $5.5 million for manufacturers or green energy projects
  • Available Repayment Rates: 10, 20 and 25 years



How to Get Started

Contact our team of qualified lenders, who are experts at helping small business owners get approved for SBA 504 loans that can help them compete, grow and succeed.