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Business Loan Rates Plunging
By Carol Wersich
The Evansville Courier Press - April 2009
If you're a potential entrepreneur with an eye on a building to buy for starting a small business, now may be a good time to proceed.
The April interest rate on a loan through the U.S. Small Business Administration 504 program has dipped to a record low of 5.25 percent.
Jean Wojtowicz is the executive director of Indianapolis based-Indiana Statewide Certified Development Corp., which helps administer the loans. She said the amount is the lowest since the 504 loans were created by Congress in 1986.
Wojtowicz, a 26-year veteran with the development corporation, recalled when the prime hit 21.5 percent in the early 1980s.
"After then, I always thought that any time the rate was under 10 percent, a person should lock it in."
But now, most certainly, is the time, she said.
The SBA 504 loan program provides long-term, fixed rate financing for commercial real estate.
Since its inception, it has funded nearly $40 billion in loans to growing small businesses nationwide.
The Indiana Statewide Development Corp. is one of about 300 certified development companies that work with the SBA and local banks to provide loans from the program.
A recent national study of the program said borrowing companies return $94 in tax revenue for every $1 of SBA 504 funding they receive.
The interest rate in March was 5.604 percent.
It primarily stayed at 6.00 percent or higher throughout 2008.
The low rate occurred when April debentures, which funded this month's 504 loans, were sold by the SBA to investors at an interest rate of 4.31 percent.
That rate, coupled with reduced loan fees provided by funds from the federal stimulus package, yielded the 5.25 rate, Wojtowicz said.
"Businesses are being very cautious, but small businesses are much more nimble and can react more quickly," she said.
"We had record numbers of loan applicants in 2006 and 2007, while 2008 was a little soft. This year started off really soft, but the pipeline now is getting full. We're seeing some uptick."
A very broad sector of small business operators may qualify for a 504 loan.
"Any business that is privately held with a net worth of less than $8.5 million and average earnings, or net income, over the last three years of less than $3 million may apply," Wojtowicz said.
In the past 25 years, the Indiana Statewide Certified Development Corp. has helped create or save more than 28,000 jobs in Indiana with the 504 loans.
Wojtowicz said since 1986 a total of 20 of the 504 loans have been awarded in Evansville for business projects totaling over $18.5 million.
Of the 20 loans, seven have been prepaid.
And, most of the 20 businesses are successful, including Oak Hill Animal Hospital, Black Buggy restaurant, Stephen Libs Candy Co. and Paint & Carpet Depot.
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