The SBA 504 Loan Program in a Rising Rate Environment

Inflation. Price Increases. Rising Interest Rates.
These topics seem to be on everyone’s minds, especially as small business owners continue to navigate the current economic conditions and stabilize or grow their businesses.
While these conditions significantly impact businesses and communities, the SBA 504 Loan Program is still a fantastic financing tool for those looking to expand or grow. Here is a quick look at the SBA 504 Loan Program in a rising rate environment and how it can benefit small businesses during this time.
Interest rates are still adjusting. Before the COVID-19 pandemic, 504 rates hovered around 4-5% for nearly a decade, which is the lowest the program had seen since its inception. While it appears that SBA 504 interest rates have drastically increased over the past few months, the rates are actually adjusting back to pre-pandemic levels and remain lower than the historical average. Below is a rate chart that dates back to January 2002 and shows where rates have priced over the past 20 years. To see the chart below on our website, please click here.
504 rates are not the only rates increasing. As the economy adjusts, conventional interest rates are also rising. Because the SBA 504 program is government-backed, the program offers below-market rates that are typically lower than those offered by conventional programs.
The SBA 504 program also helps preserve cash flow. Despite the rising rates, the SBA 504 Loan Program is still a great deal for businesses and allows business owners to preserve cash flow during these economic changes. Other advantages to the program include:
  1. SBA 504 interest rates are fixed, meaning business owners will lock in rates throughout the life of the loan at a below-market value. This can save businesses thousands of dollars in the long run, especially in a rising interest rate environment.
  2. The 504 program offers 10, 20, and 25 year repayment terms, allowing businesses to spread out their payments and leave more for cash flow in their day-to-day operations. The program does not have any balloon payments, so businesses will not have to worry about any extra payments at the end of their term, and they can lock in a rate and payment for the life of the loan. This provides stability on 40% of a project in a way that is strictly conventional financing package cannot.
  3. Most businesses that utilize the SBA 504 program have a minimum 10% down payment, which is lower than most conventional loans. Instead of providing that money upfront, businesses can now save and use that money in their daily operations.
The current economic conditions do not have to stop businesses from continuing to grow, expand, and thrive.
Contact one of our loan officers with any questions you may have or to learn how to secure a fixed interest rate.