One of the biggest reasons business owners choose an SBA 504 loan is the rate. The SBA portion of a 504 loan carries a fixed rate for the full term, which means your payment won’t change as markets move.
But 504 rates work differently than a typical bank loan. Here’s how they’re set, what goes into them, and how to compare your options.
Two Loans, Two Rates
A 504 project usually has two lenders, and each has its own rate:
- The bank or credit union loan, typically about 50% of the project. The lender sets this rate, and it may be fixed or variable.
- The CDC loan, up to 40% of the project, backed by the SBA. This portion carries a fixed rate for the full term.
Your blended cost depends on both. Learn more about how the pieces fit together on our 504 loan program page.
How the CDC Rate Is Set
The CDC portion is funded by SBA-guaranteed bonds, called debentures, that are sold to investors each month. The rate is based on the 10-year U.S. Treasury yield plus a spread set by the market at the time of the sale.
That means:
- Rates are set monthly. All loans funded in the same monthly sale get the same rate.
- Your rate locks when your loan funds, not when you’re approved.
- Once set, it’s fixed for the life of the loan.
Because the rate follows long-term Treasury yields rather than the prime rate, it often compares favorably to conventional commercial real estate loans.
Term Options
The CDC portion is available in several terms:
- 25 years and 20 years, most often used for real estate
- 10 years, most often used for equipment
Longer terms mean lower monthly payments, which can free up cash flow for growing your business.
Fees to Know About
504 loans include fees for the SBA, the CDC, and closing costs. Together they typically run about 3% of the CDC portion. In most cases, those fees can be financed into the loan instead of paid out of pocket.
When you see a 504 rate quoted as an “effective rate,” it usually includes those fees, which makes it easier to compare to other loans. Some qualifying businesses may also be eligible for fee relief. Check our homepage for current details.
Where to Find Current 504 Rates
We publish the latest 504 rates on our homepage, updated each month after the debenture sale. Rates can differ for certain types of projects, so ask our team which rate applies to yours.
Prepayment Rules
Because the CDC portion is funded by long-term bonds, it carries a declining prepayment penalty during the first half of the term. If you think you may sell or refinance early, read our post on the SBA 504 prepayment penalty before you choose a term.
How to Compare Your Options
When you’re comparing a 504 loan to other financing, look beyond the headline rate:
- Down payment. A 504 often requires as little as 10% down, which keeps more cash in your business.
- Fixed vs. variable. A fixed rate protects you from future rate increases.
- Term length. A longer amortization lowers your payment.
- Total cost. Include fees, prepayment terms, and the blended rate across both loans.
Our post on SBA vs. conventional loans goes deeper on the trade-offs.
Estimate Your Payment
Use our 504 loan calculator to see how today’s rates could translate into a monthly payment for your project.
Talk With Our Team
We help business owners across Utah, Idaho, and the Intermountain West finance buildings, construction, and equipment with SBA 504 loans. If you’d like to know what rate your project could qualify for, we’re happy to walk you through it.
Apply now or call us at (801) 627-1333.