7.05% fixed for 20 years for real estate projects, including acquisition, new construction and major renovation.

7.19% fixed for 10 years for equipment and machinery.

(Rate as of May 12, 2006)

One question that frequently comes up on 504 projects is, "How can I predict what the rate will be on the 504 loan?"

Because we can't set the rate until the project is complete, this can be a difficult question to answer. As we frequently tell people, if we could predict rates going forward, we'd be a lot richer than we are now.

However, there are some basic principles that underlie the 504 market that helps to give us an ongoing window on what's likely to happen with each loan funding.

The investors in 504 debentures are for the most part large institutional players. They are looking for a long- term government-based security that yields slightly more than a comparable treasury rate.

Investors in 20-year 504 debentures are looking for a rate comparable to a 10-year treasury note. Investors in 10-year 504 debentures are looking for a rate comparable to a 5-year treasury note.

In each case, they command a premium over and above the prevailing treasury rates, to insulate them against the effects of loan defaults and the like. The "note rate" on 504 debentures tend to run 65- 80 basis points above comparable treasury rates.

On top of that base rate, we add in the "servicing fees" each borrower has to pay to the SBA, Colson Services Corporation and Self-Help Ventures Fund. These servicing fees in turn push the 504 debenture rates about 120 basis points higher than treasury rates on the 20-year debentures, and about 150 basis points on the 10-year debentures.

With that somewhat lengthy explanation, are there some rough ways to approximate a predicted 504 rate? Here's what we do:

• For a 20-year debenture, we add between 190- 200 basis points to the prevailing 10-year treasury rate to get an approximation of the expected interest rate. For instance, for May, the treasury rate on pricing day was 5.13%, and the resulting 20-year debenture effective rate is 7.05% -- a difference of 192 basis points.
• For a 10-year debenture, we add between 215- 225 basis points to the prevailing 10-year treasury rate to get an approximation of the expected interest rate. For instance, for May, the treasury rate on pricing day was 5.02%, and the resulting 20-year debenture effective rate is 7.19% -- a difference of 217 basis points.

There are occasional unusual market conditions that will drive rates to be lower or higher relative to treasury rates - but the above estimates have been very predictable for the last year. So, if you're trying to get an estimate at any one time, using these principles will give you a good feel for where 504 rates stand at any one time.

One upfront note: The spread over treasury rates will go down for FY 2006-07. The national 504 portfolio has performed so well that losses are under expectations. As a result, the SBA will drop its servicing fee on these loans, and rates will trend down for the entire fiscal year.

Legislation currently pending in Congress could have a slight effect on the final size of the servicing fee decrease. As soon as we have a clear idea of the final outcome of these rates, we'll give you an update on how you can estimate 504 rates in FY 2007.

Call the Self-Help loan officer nearest you to discuss a project or learn more about how you can use an SBA 504 loan to help your small business customers with expansion needs.

Charlotte Region: Dale Harrold and Ralph Ansell, Self-Help, Great Aunt Stella Center, 926 Elizabeth Ave., Suite 302, Charlotte, NC 28204 * 800- 394-7428

Fayetteville Region: Allen Cofiori, Self-Help, 100 Hay St., Suite 300, Fayetteville, NC 28301 * 800-774-7966

Northeastern NC Region: Gerry Blood, Self- Help, 301 South Evans St., Suite 306, Greenville, NC 27858 * 800-893-9669

Southeastern NC Region: Louis Rogers, Self- Help, 272 N. Front St., Suite 300, Wilmington, NC 28401 * 877-559-4284

Triad Region: Travis Idol and Anna Tefft, Self-Help, 122 N. Elm St., Suite 1015, Greensboro, NC 27401 * 800-269-7426

Triangle Region: Joe Osowski, Self-Help, 301 W. Main St., PO Box 3619, Durham, NC 27702 * 800- 476-7428

Western NC Region: Tom Byers, Self-Help, 34 Wall St., Suite 704, Asheville, NC 28801 * 800- 229-7428

Contact our SBA 504 Program Director, Jim Overton, at 919-956-4473 or jim.overton@self-help.org