Certified Development Companies (CDCs) facilitate 504 loans to small businesses by partnering with conventional lenders. 504 loans are guaranteed by the U.S. Small Business Administration.
WASHINGTON, March 12, 2020 /PRNewswire/ -- Small business owners looking to purchase real estate or large equipment will find the SBA 504 loan 25-year and 20-year at the lowest rates in the program's 33-year history. The 20-year effective rate for the March sale was 2.81%, crushing the previous low of 3.98% set in June 2019. The 25-year loan, which launched in April of 2018 is also at a record low at 2.88%. These rates are effective March 5 – April 4, 2020. This is the first time a 20-year 504 effective rate calculation has been this low*.
With a record low fixed rate, long terms and only 10% down, the SBA 504 loan is attracting small business owners across the nation to consider purchasing commercial real estate. Business owners are taking advantage of the many benefits of the loan including that it often lowers their monthly payment and improves cash flow which is critical should they face an increase in operating expenses or interest rates. The 25-year SBA 504 loan has tremendous traction and has approved over $2.4 billion in financing since inception.
The 2.81% rate referred to is the current fiscal year effective rate, defined as the 20-year maturity effective rate calculated by the Central Servicing Agent using a 0.625% CDC fee and the borrower fee for the current government fiscal year.
*Based on the current fiscal year borrower fee.
SBA 504 Loan Program
The 504 Loan Program is a U.S. Small Business Administration (SBA) loan program facilitated by SBA-certified development companies (CDCs). Typically, small business borrowers make a 10% down payment, a bank or credit union finances 50% of project costs in the first lien position, and a CDC finances 40% of project cost in the second lien position that is guaranteed by the federal government. This loan program, with 10, 20, and 25-year fixed rate options, is used for commercial fixed assets (land, property, construction, or equipment) with total project costs from approximately $100,000 to upwards of $20,000,000.
About the National Association of Development Companies
NADCO is the trade association of certified development companies – the SBA's certified on-the-ground partners charged with facilitating SBA 504 loans. NADCO represents over 200 CDCs, approximately 95% of the industry, which serves all 50 states. In fiscal year 2019, the SBA approved 6,099 504 loans totaling $5 billion.
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SOURCE National Association of Development Companies (NADCO)