Current SBA 504 rates · September 2026 SBA 504 historical rates → Las Vegas (702) 877-9111Reno (775) 770-1240
  1. Home
  2. SBA 504 loans
  3. The debenture

How it works

What Is the Debenture in an SBA 504 Loan?

In an SBA 504 loan, the debenture is the SBA-guaranteed bond that funds the CDC's 40% portion. Debentures are pooled and sold to investors monthly, which is why the 504 rate is set at funding rather than at approval, and why it is then fixed for the full 10, 20 or 25 years.

What is a debenture?

The monthly bond sale that sets your rate, explained without the jargon.

NSDC explainer film.

Where the money actually comes from

The SBA doesn't write a check for your loan. Instead, NSDC issues a debenture, a bond, for the amount of the SBA portion, and the SBA guarantees it in full. Once a month, every 504 debenture approved across the country is pooled and sold to investors. The proceeds fund the loans. Your monthly payments on the SBA portion pay the bond's investors back over the term.

Why the rate is set at funding

The price investors pay for the pool on sale day, expressed as a spread over the matching U.S. Treasury, sets the interest rate on every debenture in it. Nobody knows that number until the sale prints. So your rate isn't set when you're approved; it's set when your loan is funded at the next sale after closing. From that day it's fixed. How the rate is set, in more detail.

The calendar

20- and 25-year debentures are sold monthly. 10-year debentures are sold every other month. Your closing manager will tell you which sale your loan is scheduled into.

Why prepayment has a premium

Because your loan is funded by a bond with a fixed schedule. Paying it off early means the pool has to unwind an investor's expected income, and the prepayment premium compensates for that. It declines every year and reaches zero at year 11 on a 20- or 25-year debenture. The prepayment rules.

What the interim loan is

Between closing and the debenture sale, the bank usually provides an interim second loan for the SBA portion; the debenture pays it off when it funds. On construction projects, the interim loan carries the build and the debenture takes it out at completion. Construction with a 504.

Questions

Is my rate the debenture rate?
Your note rate is. Your effective rate adds the ongoing SBA, CDC and servicing-agent fees. NSDC publishes both. Note vs effective.
Who services the debenture?
A central servicing agent processes payments for the pool; NSDC services your loan. You make one payment on the SBA portion and one to your bank.

This page is for general informational purposes only and does not constitute legal, tax, or financial advice.