SBA Loan Interest Rates
SBA loan rates for the 2 largest SBA programs – the 7a and the 504 – are quite a bit different from one another because the programs themselves are quite dissimilar.
The programs are similar in that they can be used for the purchase or construction of owner occupied commercial real estate. The 7a can be used for the refinance of commercial real estate as well as other business debts, and the 504 in rare instance of a major expansion can be used for refinancing real estate or equipment, but beyond that there are some major differences and these differences are partially responsible for the difference in rates and terms.
The 7a program can be can be used for a multitude of different business purposes including:
- business debt consolidation
- business acquisition
- financing or refinancing equipment
- purchase, refinance or construction of owner occupied commercial property
- working capital
The 504 program is only used to finance commercial real estate (including FF&E) or long-life equipment.
It can be used for purchase or construction of a building – and occasionally – the refinance of owner occupied commercial property AND for the purchase (and possibly) the refinance of equipment.
SBA loan rates for commercial real estate transactions can be amortized over 25 years with the 7a program, whereas loans for working capital or business acquisitions can only be 10 years.
SBA 7a loans can also have a “blended maturity” when the loan is used for multiple purposes as when you are purchasing a business with a lot of goodwill and a lot of “long life” equipment. The SBA lender can finance the equipment piece of the loan over the remaining useful life of the equipment and the goodwill over 10 years giving you a blended maturity.
7a rates for commercial real estate loans can be anything from a “Prime plus” variable rate to a full 25 year fixed rate.
Most of the very active 7a lenders prefer to offer an SBA loan rate at a set margin above the Prime Rate and it is typically anything from 1 to 2.75% above Prime. Typically these “active” lenders will have more flexible underwriting criteria than the few lenders who will offer a true fixed rate.
The good news is that Prime is at an all time low of 3.25%, so for now at least, any of these rates can be considered “good.”
A 5 year fixed rate is also gaining in popularity as more lenders are willing to offer it. The loan is fixed for 5 years and then adjusts after that. Most of the active lenders prefer to offer something between 5% and 6% at the moment.
There are other options as well including a 10 year fixed with a 25 year amortization (for commercial real estate transactions), but again this is relatively rare and the rate would be higher than the 5 year.
The 504 program is only for commercial real estate and equipment (no working capital, etc.) although there are lenders who will offer a “companion 7a loan” for stronger transactions if you need working capital.
SBA loan rates for the 504 are actually 2 (really 3) loans because in 504 lending there is a first mortgage, a 2nd mortgage and a bridge loan, although it is not as cumbersome as it sounds.
The rate for the first mortgage is negotiated with the lender and in the case of real estate is very commonly a 5 year fixed rate with a 25 year amortization.
The one constant with 504 rates is the 2nd mortgage which is typically a “below market” 20 year fixed rate. The rate is based on the monthly sale of a debenture (bond) on Wall St. The rate for the second is currently in the 5.20% range.
For more info on SBA loans and rates please visit our main site at www.greencommercialcapital.com