Commercial Interest Rates vs. Historical Rates: Why It’s Still a Great Time to Apply for an SBA 504 Loan

It’s no secret that interest rates are going up, but it’s still a great time to buy commercial real estate if you’re growing your business. Small business funding options like the SBA 504 loan program have consistently lower interest rates. And the good news? The rates are still low when compared to historic rates.

Here’s why it’s still a great time to buy and the many benefits you can gain with an SBA 504 loan.

How today’s commercial interest rates compare over time

Commercial interest rates for the SBA 504 loan are set below market rates, which means that the current interest rates are likely lower than you think. This makes purchasing commercial properties and major assets more affordable for small business owners like you.

While it may seem like interest rates are high right now, the truth is that they’ve been held at low levels for many years. In fact, interest rates typically fluctuate over time. Although the current prime rate is at the upper end of recent averages, the rates are at a middle point when viewed over a longer period and well below commercial rates during the peak period from 1979-1985.

In most cases, interest paid on commercial loans is tax-deductible, so even if you pay more out of pocket each month, you’ll get it back through tax deductions. Plus, you can refinance your loan down the line when the rates eventually go down. Make sure you talk with your CPA or tax advisor to help you weigh the tax benefits and responsibilities before you make your purchase.

Here are some important questions to ask yourself before you apply for a loan:

  • Will the borrowed funds give you a higher return on investment (ROI) for your business?
  • Can you use personal or business funds instead, or will that cut into too much of your working capital?
  • How will the loan impact your business’s finances and ability to compete with other businesses?
  • Will delaying now mean higher costs in the future? For example, will you run the risk of facing higher asking prices for commercial real estate, or rent increases?

To make the best decision for you and your business now and in the long run, talk to your accountant or other financial advisor. They’ll have a sense of where prices and rates are headed and can give you sound advice on when to move forward.

Frequently asked questions about commercial interest rates

Interest rates have been in the news for several years now. If you haven’t been tracking their movement over time, you might not know how current rates compare to historical rates. Here are a few questions business owners frequently ask about interest rates.

How do current commercial interest rates compare to historical rates?

Since 1953, there have been 13 periods of the prime rate being at 7.50% (similar to now); the all-time high was 21.50 % in December 1980. The historical low for the prime rate is 3.25% and has only been reached three times since 1953, including March 2020 at the onset of the pandemic-related shutdowns.

What have been the historical trends in the prime rate?

The prime rate remained below 10% between 1953 to 1974. It then increased to 12% over the next year, before falling below 10% until 1978. From October 1978 through May 1985, the prime rate ranged from a low of 10% to a high of 21.50%.

Has the rate increased this frequently in the past?

Interest-rate fluctuations can happen for many reasons. They’re usually intended to slow the economy by raising rates. Most recently, rate hikes have been used to help curb inflation. Decreasing rates can be used to stimulate the economy, which was what happened around the Great Recession.

There have been eight rate increases from March 2022 through January 2023 and there may be more to come – this time around, though, it’s the pace that’s the outlier, not the resulting prime rate. Still, this pace of increases has happened before: There were four rate increases from March 2018 to December 2018 and 17 rate increases from July 2004 through June 2006.

Benefits of purchasing your small business’s commercial property

So why should a business owner purchase commercial real estate now, even when rates are going up? There are many important benefits from keeping more money in your business, to building equity for the future. Here are a few to consider:

  1. You build up you and your business’s long-term financial health. Small business owners like you can be so busy keeping up with day-to-day challenges that you may neglect to plan for your long-term financial well-being. Purchasing your business’s commercial property means that with every payment you make on your loan, you’re building longer-term financial security for you and your business. Historically, too, real estate is one of the most reliable ways to increase wealth and protect your business against inflation.
  2. The money and time that you invest in a property benefits you, not someone else. When you lease a space, any improvements stay with the building, which benefits your landlord. If you have to leave the space, you lose the resources you invested. When you buy commercial real estate, any improvements you make increases your property’s value and you gain the rewards. In the future, you could leverage your property for additional working capital or you sell it to buy a different space.
  3. You can gain additional revenue streams if your property includes space you can lease out: SBA 504 loans require that the majority of your commercial property be used for your business. If your property includes additional space that you’re not using, you can lease it out to offset your monthly mortgage payment. Additionally, once you pay off your mortgage, the property can provide additional revenue that can help you continue to grow your business or even provide retirement income.

When you’re ready to buy commercial real estate, the SBA 504 is a great option. In addition to financing the purchase, you can also use the loan to renovate your space and purchase major equipment.

When rates go down again in the future, you can use an SBA 504 loan to refinance or to cash out on the value of your property for working capital.

Along with a competitive, below-market fixed interest rate, the SBA 504 loan program includes additional benefits:

  • Longer, fixed repayment terms (between 10 and 25 years) than conventional commercial loans and mortgages, which makes the monthly payment on your loan more affordable.
  • Down payments as low as 10% for most SBA 504 loans (compared to 20-30% for conventional commercial loans), which puts property ownership within your reach.
  • Predictable monthly payments that make it easier to budget for stability and growth.

Pursuit is here to help

Pursuit is here to support small businesses like yours achieve their goals. We offer more than 15 loan options, including the SBA 504 loan program and others to get you the funding that fits your needs. Reach out to us today to learn how we can help you keep your business moving upward, outward, and onward!

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