Current CLS Loan Program Interest Rates
The May SBA 504 bond funded on 05/14/08. The 20 year SBA 504 loan pool this month included 705 individual small business loans and funded with an underlying note rate of 5.56689%. Once the minimum statutory level of fees required to ensure the SBA 504 program remains independent of taxpayer support are added, the effective interest rate to new small business borrowers whose project were part of the pool this month, ended up at:
6.463% (twenty year fixed rate)
A 10 year SBA 504 loan pool funds each odd numbered month. The most recent 10 year note rate (also 05/14/08) crept up to 5.03087%, and, after adding in the minimum statutory level of fees required to ensure the SBA 504 program remains independent of taxpayer support, the effective interest rates to new small business borrowers whose loans were part of this 10 year pool that month, ended up at:
6.102% (ten year fixed rate)
Interest rates for the CRF Business Loan Program are set at the ten year Treasury rate + 4.40% to 4.52% (the actual rate depends on the strength of the applicant and the term of the companion bank loan) and interest rates for the NMTC Business Loan Program are set at the seven year Treasury bond rate + 2.40%, and both of these rates are locked in advance of closing.
The chart below plots various CLS financing program interest rate against the corresponding Prime rate and 10 Year Treasury rates each month since January of 2004.
While the twenty year SBA 504 rate is subject to minor fluctuation each month, it does mirror changes in the 10 year Treasury rate and currently sits (given on-going "corrections" in spread rates) somewhere in the range of 200 - 240 basis points above the 10 year Treasury index rate in effect eight days before the 504 bond is sold each month.
Although the above chart might appear a bit confusing, the crucial element of the SBA 504 interest rate is simply a function of three things each month.
* the ten year Treasury rate
* the spread over the Treasury demanded by the market, and,
* the fees included in the borrower's interest rate.
Although it is true that some more mercenary certified development companies will gouge borrowers by increasing the servicing fee that they charge them, by and large a borrower should get approximately the same interest rate no matter which development company they choose to use.
The more significant variable in the interest rate on a SBA 504 loan is the 10 year Treasury rate and, more recently, the spread over the 10 year Treasury that the market demands in return for their perceived "risk" in investing in a bond containing a collection of commercial mortgages processed under the SBA 504 loan program. Using the same time frame as the chart above, the chart below plots this risk spread each month since January of 2004. You will note the impact of the sub prime mortgage mess on the spread (beginning in August 2007) and hopefully the positive downward trends we will see with this spread in the months ahead, even as Treasury rates now begin to trend upwards.
