Commercial Loan Rates - SBA Loans

Currently one of the biggest issues in regards to commercial loan rates, SBA loans and in particular the SBA 7a loans is an inversion between the Prime Rate and LIBOR. As LIBOR has risen above PRIME, this has forced many foreign investors away from buying commercial mortgage securities on our already battered secondary market, further reducing the liquidity in our banking system and pushing commercial loan rates up.

Another challenge here is the SBA sets restrictions on the margin that banks can charged on the commercial loan rates at 2.75% max, above the index, the Prime Rate. The SBA has set this up in an effort to keep rates low for borrowers helping spur our economy.

Commercial Loan Rates

The Prime Rate is currently at 4% while LIBOR is at 4.3% as of the beginning of November. Most capital sources for foreign investors are tied to LIBOR. This is upside down as LIBOR is typically below PRIME creating the needed spread. It simply does not make sense for foreign investors to buy this debt. The SBA announced on 11/13/08 that they will allow banks to change indexes from Prime to the 30 day LIBOR + 3% which should help create the needed spread and hopefully will keep the liquidilty on the secondary market.

Commercial Loan Rates - SBA Loans

!1: Now is the time Bankers Hesitate on Higher Rates.(Industry Overview): An article from: Arkansas Business Order Today!

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This digital document is an article from Arkansas Business, published by Journal Publishing, Inc. on January 17, 2000. The length of the article is 1522 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

Citation Details
Title: Bankers Hesitate on Higher Rates.(Industry Overview)
Author: George Waldon
Publication:Arkansas Business (Magazine/Journal)
Date: January 17, 2000
Publisher: Journal Publishing, Inc.
Volume: 17 Issue: 3 Page: 1

Article Type: Industry Overview

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So what does all of this mean for the borrower that's trying to figure out what to expect on their effective commercial loan rates? The 30 Day LIBOR rate is currently at 1.45% so borrowers should think about their commercial loan rates at 1.45% + 3% + the banks margin of 2.75% = or an effective interest rate of 7.2%. This should be the current maximum rate on SBA 7a Loans. Many banks will offer a lower spread on the 2.75% in an effort to win deals though we are seeing most banks not compete on commercial loan rates but rather on reliability of closing. But strong borrowers might be able to secure 1.5% to 2% over or an effective commercial loan rate of 5.95% to 6.2%.

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Commercial Loan Rates in the Credit Crisis

The question isn't "what's your current commercial mortgage rates" but rather "can you actually get this done". All too often we get new potential customers that come to us seeking commercial mortgages and within the first moments they ask what are commercial rates are. We don't blame them, they're just trying to protect their time, and secure the best deal for them, but many borrowers have not faced up to the realities of the current credit crisis.

Obviously it's no secret what is going on, on Wall Street. The government has provided the biggest bail out since the great depression. One of the surprises for many borrowers is that even though many index's, like the treasuries have had substantial drops, the actual interest rates on commercial mortgages have in most Cases gone up (for those banks that are still lending money). Basically the banks have further raised their margins to make the loans more profitable and or to better cover future risks. In some Cases banks have had their own credit rating dropped and as a consequence their cost of capital has shot up. So when they quote rates, or fund commercial mortgages, the rates they offer are seriously affected.

Commercial Loan Rates

But again this is beside's the point. Borrowers should really be investigating if the bank, lender or broker can really close the prospective loan. Questions like "When was the last restaurant (or what ever building type your looking at) you closed? How tough are your new standards? What is your current turn down rate? How clean does the loan request really have to be to get it funded?" You need the representative to level with you. You really have to go deep. Having your loan tied up with a bank for months, that has a low chance of closing from the beginning, is a huge waste of time for all involved.

Commercial Loan Rates in the Credit Crisis

The best way to get a loan qualified is to be totally upfront with the source on whatever the issues are. And there are always issues. Tell the bank and or broker all the good and bad news up front. After they have enough information, they should be able to give you some meaningful answers, including quotes. Obliviously this will take some patience, but not as much that would be needed if you pick the wrong bank that looks at it for a few months than declines the file. And believe me it happens all the time now.

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Commercial Loan Rates, Scattered and Unpredictable

Borrowers are constantly trying to figure out what is going on with commercial loan rates. The answer to this question is completely scattered. We are seeing rates come in on the same loan request with a 200 - 400 basis point difference... And what we are talking about here is loans less than five million and non multifamily. Plain old retail, industrial, office, etc, that are either rented out to a "mom and pop" or are occupied by the borrowers business. 

Commercial loan rates now range from 4.75% to 7.5% for most deals. This is obviously a huge range and let me clarify the 4.75%. This is only on a quarterly adjustable rate. Normally tied to Prime, which as of this writing is at 3.25%. In addition, this is only for owner occupied properties. For owner occupants that want a fixed rate, meaning 3 -5 years, they should end up being in the mid 6% to 7%'s.

Commercial Loan Rates

This comes as a shock too many borrowers who are listening to the media discuss how low residential rates are. Commercial rates in general are up by 200 basis points or more than residential counterparts and getting fixed rates is becoming harder on a weekly basis. Many banks are leading with adjustable rates with a "take it or leave it" attitude.  

Commercial Loan Rates, Scattered and Unpredictable

!1: Now is the time Low loan rates keep commercial building sales down.(Real Estate Special Supplement): An article from: Fairfield County Business Journal Order Today!

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This digital document is an article from Fairfield County Business Journal, published by Westfair Communications, Inc. on September 15, 2003. The length of the article is 633 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

Citation Details
Title: Low loan rates keep commercial building sales down.(Real Estate Special Supplement)
Author: Peter Geilich
Publication:Fairfield County Business Journal (Magazine/Journal)
Date: September 15, 2003
Publisher: Westfair Communications, Inc.
Volume: 42 Issue: 37 Page: S2(1)

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Investment properties are an entirely different story. On this side of the business the real carnage is starting to show itself. Rates are not even a questions. It's really "will this loan really close." Will it really fund? We are seeing loan to values drop to 50 - 60% with most banks, coupled with property values declining. Value is killing many, many deals.

Other issues like debt coverage ratios and minimums on lease term being extended to 5 years, is hurting a lot of requests. Many banks are literally underwriting the file based on the borrower other source of income. If they can't carry the debt, if the tenant goes away, it won't close.   

Assuming the request is one that fits borrowers should expect commercial loan rates in the mid to upper 6%'s to low 7% on a 5 year fixed, 25 year amortization schedule. 

Borrowers that are in a position to wait for a year or two, should. When the market returns and it will, borrowers will have more options and more control of their situation. Until than commercial loan rates will be random and scattered. 

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