Unprecedented… historic… unique… Those are the words being used to describe the SBA’s announcement that the 504 loan program has reached its congressionally authorized cap for regular 504 loans this fiscal year ending 9/30/2021. How did we get to this point?
Historic, Low Rates
SBA 504 interest rates have continued to hit historic lows at a time when borrowers need cash most for their businesses. Since the pandemic began, we’ve continued to see interest rates as low as 2.2% and only as high as 3.1%. Compare that to 2019, when interest rates hovered around 4.5% to 5.5%. In 2018, interest rates stayed largely above 5%.
PPP & The Pivot
Many businesses were extremely savvy with their PPP funds, using it to not only manage pandemic expenses but also to pivot their business models to maximize profitability during uncertain times. When they managed to thrive, they put expansion plans into play, taking advantage of low interest rates, low down payments, fee relief and covered payments.
SBA 504 Awareness
Before the pandemic, a significant number of businesses may not have been aware of the advantages of SBA 504 loans. But when PPP funds became available through the SBA, suddenly the administration’s services gained exposure. The SBA 504’s popularity surged off the charts. Demand reached record highs.
Reminder: The lending cap is in place until Congress passes a new funding bill or the start of the new fiscal year on 10/1/2021. If the fiscal year budget is not passed prior to its start on 10/1/2021, an extension of last year’s funding budget via a continuing resolution is expected to be issued, but those funds will be in monthly increments that may not meet demand. Seedcopa’s Sherwood Robbins is Region 3 Director of the National Association of Development Companies (NADCO), which continues to advocate for any legislative fix that keeps the program operating normally. In the meantime, Seedcopa is authorized to continue submitting loan packages with no interruption. 504 debt refinancing without expansion can continue as usual.