Tuesday, August 10, 2010

The SBA and the Fed

Today, the Federal Open Market Committee said that it will continue to keep interest rates “exceptionally” low for an "extended period."

The key language about rates stayed the same: "The Committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

EXCEPTIONALLY low interest rates for an EXTENDED period already exist with a 504 loan. Currently the effective yield on a 504 debenture is only 4.93% and this rate is fixed for twenty years.

On September 14th, the Small Business Lending Bill comes up for a vote in the Senate. Should the legislation pass, the exceptional benefits of 504 financing can be extended to refinance owner-user real estate debt.

For a copy of the Federal Reserve’s press release go here:

While the rate on a SBA 7(a) loan is typically variable and adjusts on a quarterly basis, it would appear that based upon the Fed statement today, rates are not going up any time soon.

The Fed has not raised the Fed Funds rate until unemployment drops significantly. Based on the the Fed's own forecasts of the unemployment rate and inflation, the Fed will probably not raise the Fed Funds rate until late 2011 at the earliest.

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