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25-year SBA 504 Loan Gaining Traction

August 7, 2019 | SBA 504 Loans
 25-year SBA 504 Loan Gaining Traction

The information in this post about the 25-year SBA 504 loan is current, as of August 2019.

It’s been just a little over a year since the U.S. Small Business Administration launched the 25-year term SBA 504 loan and there’s every indication that small business owners are embracing this new financing option with open arms and pocketbooks.  Entrepreneurs get an SBA 504 loan to finance commercial real estate or large equipment for their business.

More than $1 Billion in 25-year SBA 504 Loans have been approved

Approvals of new 25-year SBA 504 loans have risen steadily since July 2018 when the first transactions were accepted. Last month, approvals rose to over 200 transactions and provided small business entrepreneurs with access to $150 million in financing to expand their operations. Overall, more than $1 billion in 25-year SBA 504 loans have been approved.

Interest rates have certainly helped the new program gain traction. In just 13 months, long-term rates for the 25-year SBA 504 loan have dropped nearly a full point, from 3.68 percent to 2.69 percent.

The 25-year 504 loan may get another boost if Congress approves recently introduced legislation (for 2020 budget) to increase the maximum size of SBA 504 loans for manufacturing companies by $1 million.

Related: In uncertain times, how can the 25-year SBA 504 loan help my business?

 25-year SBA 504 Loan Gaining Traction

Click above to read the American Banker article

“We think having a 25-year term is obviously better for someone taking on debt of $6.5 million,” said William Manger, the SBA’s associate administrator for capital access, in a recent American Banker story.

The 25-year term loan complements the 20-year and 10-year terms traditionally offered with 504 loans.  Extending the payment cycle reduces monthly payments for borrowers in the face of increasing operating expenses and interest rates.

“I’ve had several instances where the 25-year term has helped a small business owner qualify with their bank because the longer term lowers the monthly payment, which improves cash flow,” said Merri Adams, veteran loan officer with leading small-business lender CDC Small Business Finance. “In addition, the 25-year term makes it easy to compare with the 25-year SBA 7a loan. Side by side, the 504 loan clearly wins for commercial real estate purchases.”

Related: Tips on picking the right small business loan for you – SBA 504 or SBA 7a?

25-year SBA 504 loan details
bankers should know

“Market demand for this new loan product has clearly gained momentum,” said Mike Owen, CDC’s chief credit officer. “Now’s a good time to discuss new loan requests with a CDC loan officer.”

How did the 25-year term loan come about?

The idea for a 25-year debenture was part of an ongoing, large-scale effort by trade group NADCO to make the 504 loan program more relevant in today’s lending marketplace, said CDC President and CEO Kurt Chilcott.

NADCO is a national advocacy group that represents certified development companies, or CDCs, and others who issue financing to small businesses through the SBA’s 504 loan program.

“Over the last 30 years, most commercial real estate lending has evolved to where 25-year and even 30-year loans are no longer the exception and are more the rule,” Chilcott said.

He credits NADCO and the SBA for advocating for the 25-year term loan product, which creates the opportunity for lower monthly payments. Chilcott hopes the 25-year loan will continue to serve the needs of a broader pool of small businesses owners seeking financing.

Have questions? Reach out to an SBA 504 loan officer in your market to help you navigate the new 25-year SBA 504 debenture. For future industry updates and news about successful deals, sign up for our blog.

In case you missed it:
How a fixed-rate SBA 504 real estate loan can give a competitive edge in manufacturing
What are interest rates for affordable small business loans?
5 key differences between SBA 504 vs conventional real estate loans
Top 3 reasons small businesses should buy a building

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4 responses to “25-year SBA 504 Loan Gaining Traction”

  1. Stacie Burks says:

    Sign me up for the blog

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  2. […] the idea for the new SBA 25-year debenture was part of a large-scale effort by trade group NADCO to make the 504 loan program more relevant in […]

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