504 Prepayment Penalty Myth

One of the biggest misunderstandings of the 504 loan program is the prepayment penalty myth. Many people believe that the prepayment is a declining 10% for 10 years. It actually declines 10% per year from a starting index, which is the debenture rate, not the note rate which is 4.80% for March.

Prepayment Penalty Rates for Loans Funding March 2015For example, the debenture rate in March is 2.72%. In year five, the prepayment percentage against the outstanding loan amount would be 1.63%.

Furthermore, if you sell your business, the prepayment penalty can be eliminated. This is because your loan would be assumed by the new borrower.  Assumptions such as this can be greatly beneficial when trying to sell a business with an existing 504 loan. You get to keep the low fixed rate for the remaining term of the loan, and you will not have a prepayment penalty.

Contact us today if you need help determining 504 loan facts from fiction.

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