Chart above is a 20-year 504 loan program rate history from 2004 to 2020 (current) including fees to CDC, SBA and central serving agent based on debenture pricing published by NADCO.
Each month, the Small Business Administration (SBA) announces an updated set of rates for the SBA 504 Loan Program. The monthly notice announces new or changed rates for loans at 10, 20 or 25 year terms for both purchase and refinance.
Many business owners may have questions in regards to the financial sources that fund SBA 504 loans. Many assume that the sources come from Certified Development companies (CDC) such as Business Financial Capital (BFC) or from the SBA itself. In reality, the SBA 504 Loan program is funded by institutional investors, otherwise known as pension funds, banks and/or insurance companies who then purchase the SBA 504 loan from the CDC in a monthly sale of SBA 504 Loan debt, rather than by the SBA or a CDC. This type of funding is commonly known as a debenture. When investors purchase SBA 504 loan debt, the loans are “backed by the full faith of the US government”, making them a relatively safe investment, hence the low rate of interest paid by the business owner or borrower.
As for how the SBA 504 loan rates are chosen, the SBA has contractual arrangements with major financial institutions that manage the complicated aspects of the loan process. The first is what’s called the fiscal agent, who is Eagle Compliance, in this case. Eagle Compliance is the entity that is responsible for the marketing, pricing and sale of the debentures that are then sold to investors to fund the SBA 504 Loan Program. Representing borrowers’ interests, Eagle Compliance reaches an agreement with the Underwriters on the sale prices of the debentures, which will then be expressed as an increment over the rate for Treasury bills.
Then, the Underwriter pays for the debentures with funds from investors. These funds go to Wells Fargo Corporate Trust Services, the central servicing agent. Wells Fargo Corporate Trust Service manages the accounting and processing of all SBA 504 loan payments, since it’s the company that borrowers make their SBA 504 loan payments to. That said, it’s important to note that Wells Fargo doesn’t provide service directly to brokers—any questions about a SBA 504 Loan should be addressed to a CDC such as Business Financial Capital (BFC).
Still have questions? If so, give us a call today! Business Finance Capital (BFC) is a Los Angeles-based SBA Certified Development Company specializing in the SBA 504 program. We’ll gladly explain in more detail how SBA 504 loan rates are determined, and help you determine whether the 504 Loan Program is right for your business! Contact us today at 1-800-SBA-REAL.