What 5% Treasury yields actually mean for a repair shop's building loan, a landlord and a dentist

The bond sell-off that pushed the 10-year Treasury yield to its highest level since 2002 earlier this week did not let up after Friday's weak jobs report. The 10-year was at 5.281% in the afternoon, CNBC reported, after first dipping on the news. The headlines are about the 10-year and mortgages. For a lot of small businesses the number that matters more is the 5-year, because many commercial fixed rates and equipment loans are priced off it.

According to the Treasury's own daily rates, the 5-year closed at 5.09% on Sept. 30, the highest since July 6, 2007, and was 5.01% on Oct. 1. A year ago it was 3.68%. On Oct. 1, 2021 it was 0.93%.

The thing the headline gets wrong: who this actually hits

"Yields at a 24-year high" sounds like it hits every borrower equally. It does not. Over the past week the 2-year yield fell, from 4.85% on Sept. 23 to 4.78% on Oct. 1, while the 10-year rose from 5.11% to 5.24%, Treasury data show. A business on a prime-based credit line is tied to the Fed, not to this sell-off, and Friday's jobs report made an October hike less likely, as we covered in this morning's Fed odds story.

The owners who get hit are the ones with a fixed rate that is about to be reset or refinanced. The size of the hit depends almost entirely on when that rate was last set.

A repair shop that owns its building: about $1,800 a month more

Take an auto repair shop that bought its building in October 2021 with a $900,000 loan on a 25-year schedule, fixed for five years. For illustration, assume the lender priced it at 2.75 points over the 5-year Treasury. Your note will say your actual margin and index; use those.

• 2021 rate: 0.93% + 2.75 = 3.68%. Monthly payment about $4,593.
• Balance after five years: about $779,460.
• Reset at today's 5-year: 5.01% + 2.75 = 7.76% on that balance over the remaining 20 years. Payment about $6,404.

That is about $1,811 a month, or roughly $21,700 a year, on a building whose value has not changed. Even against a loan reset a year ago, at 6.43%, today's payment is about $625 a month higher. The last 12 months alone did that.

224,738 independent auto repair shops are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 26,287 in CA, 22,628 in TX, 14,123 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

For a shop, $21,700 a year is the profit on a lot of brake jobs. Our auto repair playbook covers pricing and bay utilization, which is where that money has to come from.

A strip-center landlord: the rent has to cover more debt

Put the same loan on a small retail center leased to a nail salon, a pizza place and a tax preparer. Commercial lenders size loans against net operating income, and a common test asks for income of 1.25 times the annual payment. Check what your lender actually uses.

• At the 2021 payment, 1.25 times coverage needed about $68,900 a year of net operating income.
• At the reset payment, it needs about $96,100.

If the building earns $80,000, it passed in 2021 and fails today by about $16,100. The usual outcomes are a smaller loan, which means the landlord brings cash to the refinance, or a push for higher rent at the next renewal. That second one is the part tenants feel: if you lease space in a building that was bought or refinanced around 2021, the owner's financing costs may come up when your lease does.

A dentist financing equipment: about $160 a month, so do not panic

Shorter loans move far less. Take a dental practice financing $250,000 of imaging equipment over five years. Assume, again for illustration, 3.5 points over the 5-year Treasury.

• A year ago: 3.68% + 3.5 = 7.18%, payment about $4,972 a month.
• Today: 5.01% + 3.5 = 8.51%, payment about $5,130 a month.

The difference is about $159 a month, or roughly $9,500 over the life of the loan. That is real money, but on equipment that earns its keep in procedures, it is rarely the reason to cancel a purchase.

126,946 independent dental practices are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 19,080 in CA, 11,032 in TX, 8,104 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

What to actually do

• Find your reset date. Pull your commercial mortgage note and look for the words "adjustment date," "maturity" or "balloon." If it falls in the next 12 months, run the arithmetic above with your own balance and margin today, so the new payment is not a surprise.
• Start early if you have to refinance. A refinance takes time to underwrite. Owners with a 2026 or early 2027 maturity are better off collecting quotes now than in the last month, when they have no room to walk away.
• Tenants: read your renewal date against your landlord's. You cannot see their loan, but if your building changed hands around 2021, expect a harder rent conversation and plan your budget for it.
• Equipment buyers: do nothing different. The move adds a few percent to a payment. Buy on whether the machine pays for itself, not on the yield headline.

Where yields go next depends on inflation data. The September consumer price index is due Oct. 14 and the Fed meets again Oct. 28. Our 10-year yield story covers what drove this week's move, and what 7.28% mortgage rates mean covers the residential side.

Sources: U.S. Treasury daily par yield curve rates; CNBC; business counts from CheckThisBiz. Loan amounts, spreads, terms and building income are illustrative assumptions; payments use standard amortization and are our arithmetic. This is general information, not financial advice.