SBA 7(a) Rates
One of the first questions business owners ask when applying for a loan is what is the interest rate. In this episode of SBA FM you will learn how SBA 7(a) guaranteed loan interest rates are determined and what to expect in your own situation.
SBA 7(a) guaranteed loan interest rates are determined by three factors: the SBA Standard Operating Procedure manual, The lending institution which is reviewing the loan application and the economic market conditions at the time of the loan application.
Page 154 of the SBA Standard Operating Procedure manual includes a quick reference chart that outlines the maximum allowable interest rate charged by SBA Preferred Lending Partners categorized by loan amounts, loan maturities and loan programs.
There are three uniformed base interest rates or rate indexes the SBA requires lenders use as a starting point when determining the effective interest rate; Prime, Libor Base Rate and the SBA Optional Peg Rate. The most common index used by lenders is Prime. The Prime and Libor Base Rate are determined by factors outside the SBA.
To achieve the effective interest rate, the SBA determines the maximum spread allowed over the rate index. For example; the maximum interest rate for a loan of $500,000 with a maturity of 10 years is Prime, which is 5.5% as of today, plus a spread of 2.75% for an effective interest rate of 8.25%.
Remember, the SBA determines the maximum allowable interest rate. However, there are two other factors that also determine the effective interest rate that are outside the SBA’s control.
The first factor outside the SBA’s control is lender discretion. Lenders have flexibility to determine the interest rate they charge applicants. Lenders who cater to stronger applicants will generally charge a lower interest rate due to less risk and lenders who cater to riskier applicants will generally charge the maximum allowed interest rate.
The second factor outside the SBA’s control is the economic market conditions at the time of the application. For example, in a weak economy Prime is usually lower, then naturally the effective interest rate is also lower, in a strong economy Prime is generally higher, then the effective interest rate is also higher.
Contact us if you’d like help determining the likely interest rate you will be charged for your unique situation.
My SBA Loan Pro
The My SBA Loan Pro Podcast is hosted by Your SBA Loan Pro, Ryan Smith. In each episode Ryan provides valuable information and best practices regarding the SBA loan program.
Each episode is approximately one minute in length and addresses topics related specifically to SBA 7(a) and 504 loan programs to purchase real estate, acquire a business or franchise and obtain working capital.
You’re encouraged to listen and subscribe to ensure you’re notified each time a new episode is available. Ryan publishes a new episode weekly on Tuesday mornings, unless he’s kidnapped to a deserted island of course.