What Are SBA 504 Loan Rates and Costs?
Interest is a major consideration with any type of loan, particularly business loans. The good news is that with an SBA 504 loan, you will pay below market rates in interest. What interest rate will you receive, though? That’s a vital question to ask, but there is no simple answer. One reason that there’s no simple answer is that you will not have a single interest rate. You’ll receive one interest rate on the funds loaned to you by the CDC, but the lender will have their own rates. While there is no way to predict what your rates will be, you can get a good idea.
First, you need to check the current Treasury bond rate. All 504 loans are tied to a particular bond rate. For instance, a 10-year loan will be based on the 10-year treasury bond rate. A 20-year loan will be based on the 20-year treasury bond rate, and a 25-year loan will be based on a 25-year treasury bond.
Second, you need to factor in a couple of fees. There is a guarantee fee paid by the lender to the SBA. There is also a servicing fee that the lender will pay to the CDC. Finally, there is a fee to the central servicing agent. Your interest rate will be the sum of those fees, plus the bond rate that applies to your loan. Note that there is also a 2.15% one-time fee payable to the SBA on top of this, as well as other fees that are due at closing.
Costs for SBA 504 Loans
While the 504 loan has very low costs, and most of those can be rolled into the loan itself, it does have fees and charges that you need to know about. You’ll find a number of processing fees, such as a funding fee, a CDC processing fee, an attorney fee, and an underwriting fee. The bridge loan will also have fees and possibly loan points.
Other costs include appraisal fees, environmental assessment fees, title insurance, hazard and flood insurance, and miscellaneous fees, including certification of corporate status, UCC filing fees, IRS verification fees, and more. Your CDC and lender can provide you with a full rundown of all fees, as well as how and when they should be paid.
Credit Scores and SBA 504 Loan Rates
Understand that while the SBA does not have any particular credit cutoff points, that is not true for the lender that you will work with. The CDC will also check your credit. It is also important to understand that your lender will be looking at your business credit score, and not your personal score. A low business credit score can affect the terms you are offered, as well as whether a conventional lender will work with you for the 50% of the loan they are required to supply. For a 504 loan, you should have a credit score of 680 or higher.
However, realize that a lower score does not mean that you are out of the running. Work with your CDC here. Be open about the low business credit score, and explain any situations that led to that. You should also explain the steps you are taking to improve the score. Ultimately, a low credit score does not necessarily count you out of the running for an SBA loan, as there are numerous other factors that go into determining your creditworthiness. This will be established during the CDC pre-qualification process and during the application process.