How is the interest rate on a 504 loan set?
Short answer
The debenture rate is set when the debenture is sold, based on market rates for long-term government debt. The 10-year Treasury most often benchmarks 20-year and 25-year debentures, and the 5-year Treasury benchmarks 10-year debentures. Source: SOP 50 10 8.1, Sec. C, Ch. 1, Para. D.3.
Your 504 rate comes from market conditions at the debenture sale, not from the Certified Development Company (CDC). SOP 50 10 8.1 says the rate reflects market conditions for long-term government debt at the time of sale (Sec. C, Ch. 1, Para. D.3, p. 241). SBA sets the rate, and the Secretary of the Treasury approves it (13 CFR § 120.932).
The benchmarks
- 20-year and 25-year debentures: most commonly the 10-year Treasury.
- 10-year debentures: most commonly the 5-year Treasury.
When the rate is fixed
Debentures are normally sold on the Wednesday after the second Sunday of each month. The Fiscal Agent normally negotiates the final rate and fees on the Tuesday after the first Sunday (Sec. C, Ch. 3, Para. E, p. 285). On a construction project, the sale generally comes after the project is complete (Ch. 2, Para. C.1, p. 270). So your rate is usually not known at SBA approval.
Why no number appears here
The rate changes with each monthly sale. Ask your CDC for the most recent sale result. Do not rely on an old quote.
The third party loan
The bank's rate must be reasonable (13 CFR § 120.921(b)), and it varies by lender. Your total cost depends on both loans plus the 504 fees.
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