Interest Rates & Spreads
Interest Rates
SBA loan interest rates are typically based on the prime rate currently at 7.5% plus the bank spread. The SBA puts caps on the spread based on if the loan is variable or fixed, the program, and the loan amount. Depending on the type of loan and amount currently rates can range from the mid 9% range to the mid 10% range.
Fixed and Variable Rate Options
Both fixed and variable rates are available with both conventional and SBA loans. Usually, most all conventional loans are fixed and most all SBA 7(a) loans are variable. However, a conventional lender will typically provide a better rate when set at variable instead of fixed and an SBA lender will typically charge the maximum rate allowed if set at fixed instead of variable.
Base Rate and Spread
General guideline to ball park interest rate expectations:
Most conventional lenders will base their rate spread for most loans between 3% and 5% over the 10 Year Treasury rate.
Most SBA lenders will base their rate spread for most loans between 2% and 3% over the Wall Street Prime (WSP) rate.
There are conventional lenders that will use WSP rate instead of the 10 Year Treasury. SBA puts a cap on the rate spread a lender can charge. For SBA 7(a) loans the maximum spread is 3% over the WSP rate regardless if the rate is fixed or variable.
As a general rule, lenders with narrow qualifying criteria will have slightly better rates than lenders with wider qualifying criteria.
Prime Rate
The Prime rate is the base rate used by most SBA lenders (some use the SBA Optional Peg rate) and some conventional lenders will base their spread of the prime rate as well.
10 Year Treasury Rate
The 10 Year Treasury rate is the base rate used by most conventional lenders in the wealth management industry.