Rate jumps on SBA property loans

Interest rates are up sharply on a loan program that allowed many businesses to own their own buildings, but bankers say it's too early to tell if the boom is over.

The rate on the Small Business Administration's 504 loans rose to 6.7 percent in August from 5.7 percent a month earlier.

"It's a pretty good jolt upward," said Mark Phillips, executive vice president and chief credit officer of Business Bank of Nevada.

The SBA 504 loans have helped fuel the growth in owner-occupied business buildings offices, stores and factories alike throughout northern Nevada in the past couple of years.

Lenders have made a compelling case that it's cheaper for businesses to borrow the money to buy their own facilities than continue to pay rent especially when interest rates have been at historically low levels.

Although businesses can borrow the entire amount from a commercial bank, use of the SBA program is attractive because it requires smaller down payments, said Bobbi Bennett, Reno-based president of Nevada State Development Corp.

The company is the biggest SBA lender in the state.

Under the SBA 504 program, Bennett explained last week, a borrower puts 10 percent down toward the purchase of a building or major equipment.

A bank loans 50 percent of the purchase price, and a separate SBA loan funds the other 40 percent.

Business people who use the program are attracted, too, by rates that can be fixed for as long as 20 years.

Borrowers often talk about the "blended rate" on SBA loans a figure that combines the interest rate on the bank's piece with the rate charged by the SBA.

Last month's spike in the cost of the SBA's portion will push that blended rate up.

So far, however, potential borrowers haven't reacted.

Phillips suggested that the news about the upward move in rates hasn't filtered out to many business owners who have been thinking about purchasing their own buildings.

As they hear of the higher rates, he said, some may feel pressure to get deals done for fear that rates will move even higher.

If rates continue to climb, he said other businesses will find themselves priced out of the market.

That increased sense of urgency already is felt at Northern Nevada Bank, a Renobased institution that specializes in business lending.

President Robert Hemsath his bank has seen a "big push" of potential borrowers for all business loans, not just the SBA 504 program who want to get financing in place before rates move higher.

"That's a normal response to changes in interest rates," he said.

Dennis Williams, president of community banking for First National Bank of Nevada in Reno, said borrowers are aware, too, that interest rates remain low even after the recent upticks.

"For many people, 6.7 percent on a 20- year fixed is a pretty good deal,"Williams said.

Any slowdown in the SBA 504 program would have implications as well for the banks that have done a tidy business with the loans.

Business Bank, for instance, has seen a 50 percent increase this year in loans it's handled in conjunction with the SBA 504 program.

"It's a great product," said Phillips.

"We push it.

It make sense for the customer."

Nevada State Development Corp., meanwhile, expects to finish its fiscal year in September with a record number of loans 110, compared with a previous annual high of 70.

Bennett said the development corporation hasn't seen any fallout from the higher rates, perhaps because business in northern Nevada typically is slow in the summer and potential borrowers begin paying closer attention as the vacation season winds down.