A Windfall for 504 Borrowers: 504 Rates Fall Again!

SBA 504 effective rates have declined over the past two months, contrary to a continued rise in the Fed Funds rate, which is used as an index for all short-term interest rates. The result – a windfall to 504 borrowers.

Both lenders and borrowers understand that now is the time to lock in historically low 504 loan rates for the next twenty years. The disparity between short-term and long-term rate trends will come to end soon, and these rates will then more closely parallel each other-- as they have over the last several decades.

A recent study published by Fishkind and Associates shows that short-term rates, as measured by the Fed Funds rate, have been at historic lows for the past three years (2002, 2003, and 2004) when compared to 10-year Treasury rates and average mortgage rates. The data suggest that this market disparity is now returning to more traditional norms as demonstrated by the current increase in short-term rates and the drop in long-term rates for the past three months.

link: www.fishkind.com/msaindex.html

In a response to FFCFC questions regarding this market rate disparity, Steve van Order of the Development Company Funding Corporation (DCFC) said: “The debenture rate for the month [June] was 4.57%, which was substantially lower than May’s debenture rate of 4.84% and . . . that’s just a function of market conditions. Even though the Fed’s been hiking rates, a whole big ball of wax has been helping to push long term interest rates down – something we’ve never seen before – the Fed’s hike of 200 basis points in the last year [e.g. Fed Funds], and yet the 10-year treasury, our benchmark, is down 80 basis points. It is a windfall for the borrowers right now, as long as this period of low long-term interest rates lasts during a growing economy.”

As one of Florida's premier economic consultants, Fishkind & Associates, Inc. has extensive experience in economic and fiscal impact analysis, forecasting and finance throughout Florida and the United States.
DCFC is the fiscal agent for the 504 loan program handles the marketing and sales of the bonds (debentures) sold to investors to fund the SBA 504 loans.

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