Posted on April 26, 2019
By Mark Abell
A relatively new extended-maturity loan option from the U.S. Small Business Administration is heating up the real estate market among small businesses that are anxious to purchase properties while the economy is booming and interest rates remain low.
In April 2018, the U.S. Small Business Administration announced changes to its 504 loan program to allow for a 25-year maturity on the debenture portion of the financing package. A 504 facility is structured in three parts: a bank loan for 50 percent of the amount being financed, up to a 40 percent debenture (or bond) that carries an SBA guarantee, and as little as 10 percent equity funded by the borrower. Previously, the SBA-backed debenture was available with 10- and 20-year maturities. Now that longer 25-year maturities are available, businesses can effectively borrow more funds.
That’s especially true now because interest rates are low and there is very little difference between short- and long-term rates — an unusual circumstance that is called, in financial parlance, a flat yield curve.