Interest Rates are Rising: Here’s Why It’s Smart to Lock in an SBA 504 Loan Now

Business owner working on laptop

It’s all over the news: interest rates are rising on everything from home mortgages to credit cards. If you’re looking for business funding now, you might be concerned as the rates keep going up. But if you get approved for a fixed-rate loan, you’ll have peace of mind that your interest rate will stay the same.

The SBA 504 loan is still a great option if you’re purchasing your own physical space. It offers low rates that are fixed for the life of the loan, which makes it easier for you to budget for the long term. Plus, if rates fall in the future, your commercial loan can be refinanced so that you can benefit from even lower rates.

Here’s a brief look at the SBA 504 loan program and its key benefits.

The SBA 504 loan program: An exceptional option for commercial real estate and more

The SBA 504 loan program helps small business owners like you purchase, renovate, or construct owner-occupied commercial real estate, as well as fixed assets like large equipment. The SBA 504 loan program can also be used to refinance eligible, existing business-related debt, including a commercial mortgage. By refinancing at a lower rate, you’ll lower your monthly payments or gain working capital from the equity that you’ve built up.

There are many financial benefits to owning the property that you use for your business. An SBA 504 loan can make it easier for you to make that a reality, especially considering you’ll only need to put 10% down for the loan. To be eligible, at least 51% of the space must be used for your business, but the remaining space can be used to generate additional income, such as leasing the unused space to another business.

When interest rates are rising, the SBA 504 loan program is a wise choice

The SBA 504 loan program offers competitive interest rates, even when inflation is causing interest rates to rise. Let’s take a look at some examples. If your business closed on a 504 loan for $1,000,000 on April 1, 2022, here’s what could happen: 

  • Variable rate loan: Using the prime rate +1% for a 20-year term with a 20-year amortization, your beginning payment of $6,326.49 in April would increase to $7,455.73 as the interest rates rose in July. The monthly payment would be even higher today.
  • Conventional loan: Let’s say you had a fixed-rate loan at the 10-year treasury note interest rate, plus an additional 200 basis points (or +2%) on a 10-year term with a 20-year amortization. Your monthly payment would be $6,261.90 for 10 years. Then you would either have to pay off the balance of $607,592.26 or refinance it at the market rate in 2032.
  • SBA 504 loan: With an SBA 504 loan you’ll have a 25-year fixed-rate loan with a monthly payment of $6,022.98 for the life of the loan.

As you can see, when compared to the variable rate and conventional loan options, there’s a huge savings with the SBA 504 loan. Because you’re locking in a 25-year fixed rate, you’ll have stability for your business and peace of mind while interest rates are rising.

Interest rates for most loans are unpredictable – but not with the SBA 504 loan program

Interest rates will always rise and fall, it’s simply part of our economic cycle. What’s impossible to predict, though, is which way they’ll go and when. The SBA 504 program eliminates the uncertainty, allowing you to plan for its future.

Locking in a low rate for an SBA 504 loan now means that your interest rate is fixed. In addition, the long repayment term means that your business has more money on-hand. Plus, you have the security of knowing that if rates decline, you can refinance your loan to get a lower rate.

Lock in all the great benefits of the SBA 504 loan program with Pursuit

Pursuit helps small business owners like you in New York, New Jersey, and Pennsylvania get the financing you need to start and grow your business. Whether you’re actively exploring commercial real estate loan options or just want to learn more, contact us today. Our business development officers are happy to discuss how we can help you reach this next milestone with your business.

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