Advisors See SBA Loan Variable Rates Increase Again
Last week the Fed raised interest rates 25 basis points for the second time in 2018. This pushes the Wall Street Journal prime rate from 4.75% to 5%.
This means that for 6 of the last 7 quarters the Fed has increased rates.
- Q4 2016 = 25 bps
- Q1 2017 = 25 bps
- Q2 2017 = 25 bps
- Q3 2017 = no change
- Q4 2017 = 25 bps
- Q1 2018 = 25 bps
- Q2 2018 = 25 bps
Higher rate trajectory is increasing:
- 1980 rate 21.5%
- 1997 rate 8.5%
- 2007 rate 7.25%
- 2012 rate 3.25%
- 2015 rate 3.50%
- 2016 rate 3.75%
- 2017 4.5%
- 2018 Q2 rate 5%
- 2018 YE projects at 5.5%
Rates based on year-end for stated year.
SBA lenders will typically charge from 2% to 2.75% above the WSP as the variable interest rate. Rates can vary based on a host of factors. With credit quality being equal, the smaller size loans typically see a spread closer to 2.75% and larger loans typically see the spread closer to 2%.
The SBA lenders focused on Financial Advisor lending, use the Wall Street Journal Prime Rate. The WSJ prime rate typically tracks at about 3% above the fed rate.
The SBA sets a maximum allowable interest rate spread at 2.75% above prime rate for their 7(a) program which most all SBA loans advisors have been under.
With this latest rate increase, most SBA loans advisors have will now be from 7% to 7.75%.
The Fed expressed the likelihood of two more rate increases this year. If this materializes then the SBA rates advisors are paying will have jumped 1% in 2018 alone.
By the end of the year with a prime rate of 5.5%, the SBA rates will be ranging from 7.5% to 8.25%.