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504 Rate Update

504 January 2017 Rates


4.585% – 10 Year Debenture Effective Rate *

4.580% – 20 Year Debenture Effective Rate *


Navigating the attributes of a rising rate environment – it has been a long time
In a rising rate environment few products can match the appeal of the twenty year fixed rate of the SBA 504 program.  The appeal extends to both borrowers and lenders alike: the enhanced ability to repay a loan through the benefits of long term fixed rates and fully amortizing loan terms, is a potent demonstration of “form follows function”.
However, when rates are rising the question becomes “is the marginal rate of increase”, the trend line of the yield curve, growing as well?  If so the appeal of the SBA 504 grows even more, despite the timeframe from approval to the debenture rate set and funding.  Thus we need to ask, what might further shift the curve?

Chart and Statistical Data is from September 2006 to January 2017

Debenture Rate 10 Year T-Note
Spread Over T-Note
January 2017
2.40% 0.40%
2.87% 0.80%
2.66% 0.62%
0.00965584 0.005582477
Since November of 2016 there has been a significant move in the ten year Treasury market, reaching well over a full one percent (1%) from the summer lows, before slightly backing off at the end of the calendar year.  Recent financial media stories, noted below, describe a variety of scenarios in which demand for Treasuries suffers downward pressure.  The common culprit?  The current strength of the US Dollar and the probability that this cannot continue.  A weakening of the US Dollar, even in a relatively benign case of regression to the mean, implies higher interest rates.  If this occurs in the context of other inflationary pressures, the shift in the yield curve could become much sharper.

Sharper upward shifts in interest rates does not qualify as “tidings of comfort and joy” for either borrowers or lenders.  As we are already in the cold light of a New Year, perhaps we should look at mitigating this risk, using the SBA 504?

Happy New Year!

(1) Financial Times, “Dollar will find buyers hard to find in 2017“, Paul Donovan, 29 December 2016.
(2) Bloomberg, “Beware the Foreign Exodus from Treasuries“, Lisa Abramowicz, 30 December 2016.

We welcome the opportunity to earn your business

* Note: Rates are subject to credit determination & auction pricing. Past performance is no guarantee of future results.

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South Central Tennessee Development
101 Sam Watkins Blvd.
Mount Pleasant, TN 38474
Office (931) 379-2918
Fax (931) 379-2640

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