Refinancing Floating Rate on the 7(a) Loan into a Fixed Rate
The Gap In Rates-a Chance to Refinance The Federal Reserve has been steadily raising rates over the last year and a half moving the prime rate up 1.75% in that time. This has affected all prime based borrowing like SBA 7A loans and business lines of credit, etc. Small businesses have seen the brunt of the increase. For example, 2 years ago I would do a franchise start-up loan and the rate was 5.75-6%. That same deal now is 7.5-7.75%. That franchise, in an adjustable loan, has seen his payment on a $300,000 loan go up almost $270 a month. If that business runs 10% profit margins, that is the same hit to his business as a loss of $2700 a month in sales. For most businesses, however, this increase in payment has been handled by increased sales as the economy has done very well over the last year and a half.
But what if that floating SBA 7A borrower could refinance into a fixed rate loan? Where have fixed rates gone in the past year? They have gone up....but less than 1%. In addition, the spreads have tightened. SO a fixed rate loan on a 10 year fixed that is tied to the 10 years Libor Swap Rate has gone up less than 3/4%. A year ago, the 10 year Libor swap rate was 2.1%. On Friday it closed at 2.97%. An increase of less than 1%. But one year ago a typical 10 year fixed loan was quoting about 2.25% above the Swap Rate. So the rate quote one year ago was 4.35%.(2.1 index plus 2.25 spread equals 4.35% rate).
On Friday, I quoted someone 1.99% over the Swap Rate. A 4.96% interest rate. Just .61% higher than a year ago. The rate has gone up less than the prime AND the spreads have come down. SO an SBA 7A loan is 1.75% higher but the corresponding fixed rate is only .61% higher. There are a lot of reasons for this gap and the pressure on pricing which is too much to discuss here (but feel free to call me at 512-354-5949 to understand this more). THE BIG TAKE AWAY IS THIS-IF YOU OWN A PROPERTY AND YOU ARE ON A FLOATING RATE NOW IS THE TIME TO FIX IT. The spreads cannot go down much further, and barring a major recession, most experts believe we are in a rising rate environment. SO NOW IS YOUR CHANCE!
To get a FREE ANALYSIS of your situation just give me a call at 512-354-5949. I can crunch the numbers and make sure it makes sense for you. So, whether you are a business owner or buying a commercial investment property, give me a call today to see if refinancing makes sense for you. Call me at 512-354-5949 and let's start saving today!
Karen Schimpf
512-354-5949
karenschimpf at gmail.com
Give me a call today to discuss your deal at 512-650-8630