Commercial Real Estate Has a Great New 25-Year Financing Option

Written by: Nick Collins Posted: 4/24/2018
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The US Small Business Administration (SBA) has announced the creation of a 25-year debenture in the 504 loan program.

“More options and flexibility in the program will only make the 504 program more attractive to both our business and banking partners,” explained Jason Monnett, Wisconsin Business Development Senior Lender.

The SBA 504 program allows businesses to get low, long-term, fixed rates on owner occupied commercial real estate and equipment, with as little as 10% down. The program can lock in up to 40% of the project costs, helping local lenders get more comfortable with growing businesses. The 504 program currently offers 10-year terms on equipment and up to 20-year terms on real estate with rates currently around 5%.

Most CDC’s will begin accepting applications for the new 25-year debentures immediately. The first 25-year debenture sale will occur in July and they will be sold on a monthly basis thereafter. Early indications point to a rate somewhere around 27 basis points above the 20-year rate. The voluntary prepayment schedule will stay at 10 years for the 25-year loans, the same as for 20-year loans.

“For many businesses in growth mode, cash flow is very important. The 504 program not only reduces the down payment to 10%, it now can offer a choice between a 20 and 25-year term and the monthly effect on cash flow can be significant,” noted Monnett.

The illustration above shows the cash flow savings to a business making a $2,500,000 real estate purchase. 

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