The New 25-Year SBA 504 Loan | New Small Business Loans


March 6, 2021

See SBA 504 vs. 7a loan comparison here

The information in this post about the 25-year SBA 504 loan is current as of March 6, 2021.

It’s been nearly two years since the U.S. Small Business Administration began accepting the 25-year term SBA 504 loan. There’s every indication that small business owners are embracing this new financing option with open arms and pocketbooks. Entrepreneurs seek SBA 504 loans to finance purchases of commercial real estate or large equipment for their business.

“I think anytime a borrower can attain five more years of debt repayment capacity in structuring their monthly loan payment it provides relief,” said Mike Owen, FE Small Business Finance’s chief credit officer.

Almost $1.5 billion in 25-year SBA 504 loans approved in FY 2021

Use of 25-year SBA 504 loans has taken off since July 2021. In the fiscal year that ended Sept. 30, 2021, in more than 1,800 transactions, small business owners received $1.45 billion in financing to support or expand their operations. 

The outlook for the 25-year 504 loan appeared rosy through the first part of the fiscal year that began in October, Dianna Seaborn, the SBA’s director of the Office of Financial Assistance, told American Banker last year. The early numbers for FY 2021 bear that out.

Since October 2021, nearly 1,300 25-year 504 loans have been approved, for just shy of $1 billion. That far exceeds the activity over the same period in FY 2021, when there were more than 500 loans for a total of $404.2 million in financing for small businesses.  

In FY 2021, in fact, volume for the 25-year SBA 504 loan is outpacing the 20-year term loan.

The below-market fixed interest rate for the SBA 504 loan is certainly a benefit to borrowers and has made the value of the 25-year term even more attractive. The rate fell in the last month and continues to track at impressive lows. For March it is 2.878% (effective March 5 – April 4, 2021).

The 25-year loan may get another boost if Congress approves a recent  legislative proposal to increase the maximum size of SBA 504 loans for manufacturing companies by $1 million.

SBA 504 25 year loan

Click above to read the American Banker article

The longer term loan complements the 20-year and 10-year terms traditionally offered with 504 loans. Extending the payment cycle reduces monthly payments for borrowers should they face increasing operating expenses or interest rates.

“I’ve had several instances where the 25-year term has helped a small business owner qualify with their bank because the longer term lowers the monthly payment, which improves cash flow,” said Merri Adams, a veteran loan officer with FE Small Business Finance. “In addition, the 25-year term makes it easy to compare with the 25-year SBA 7a loan. Side by side, the 504 loan clearly wins for commercial real estate purchases.”

25-year SBA 504 loan details bankers should know

“Market demand for this new loan product continues to gain momentum,” Owen said. “We thought we would see growth. Did we think it would be the level of growth we have today? No.” 

He added, however, that It’s great to see so many small business owners taking advantage of a product that can offer such a benefit for their business. That makes it a good time to discuss the 25-year SBA 504 loan or address any questions about the program with a FE Small Business Finance loan officer.  Here are some of its features:

  • 25-year debenture – issued in a standalone fund pool.
  • 25-year debenture sales occur monthly like the 20-year debenture. The final decision will depend on demand for the product.
  • The third-party lender accompanying a 25-year 504 loan has to issue a minimum 10-year term on its participating note.
  • 20-year term SBA 504 loans approved before April 2, 2021 cannot be extended to 25 years.

How did the 25-year term loan come about?

The idea for a 25-year debenture was part of an ongoing, broad effort by trade group NADCO to make the 504 loan program more relevant in today’s lending marketplace, said FE President and CEO Kurt Chilcott.

NADCO is a national advocacy group that represents certified development companies, or FEs, and others who issue financing to small businesses through the SBA’s 504 loan program.

“Over the last 30 years, most commercial real estate lending has evolved to where 25-year and even 30-year loans are no longer the exception and are more the rule,” Chilcott said.

He credits NADCO and the SBA for advocating for the 25-year term loan product. Seaborn and William Manger, the SBA’s associate administrator for capital access, told American Banker that former Administrator Linda McMahon cleared the way for the 25-year loan.

Chilcott sees the long-term SBA 504 loan as a valuable product. He said it will continue to serve the needs of a broader pool of small business owners seeking financing.


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