As of April 2, 2018, the U.S. Small Business Administration is now accepting applications for 504 loans with a 25-year term. Since 1986 when the 504 program began, small businesses could only choose between 10- and 20-year terms. This third option will decrease the monthly payments for the small business borrower. It will also provide flexibility for small businesses to better manage critical operating capital, which becomes more important when small business cash flow is increasingly challenged by rising operating expenses and interest rates.
It is estimated the effective interest rate on the 25-year loan will be slightly higher than the 20-year loan. In the March 2018 sale of 504 debentures, the effective rate for a 20-year loan was 4.92%. Based on the pricing of the March sale of 504 loans to the underwriters of Bank of America, Merrill Lynch, and Credit Suisse, the new 25-year loan is estimated to have an effective rate of 5.19%.
Of course, whether a 10-, 20- or 25-year term, the SBA 504 Loan Program offers the security of knowing the monthly payment will never go up. Today is a perfect time to lock in a long-term, competitively priced interest rate with a set monthly payment that won’t change when interest rates rise.