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The maximum interest rates a bank can charge for an Small Business Administration (SBA) loan depends upon the loan program, loan amount, and loan term. Most SBA loans fall under the SBA’s 7(a) loan or the 504 loan programs. SBA 7(a) loans can be used for a wide variety of purposes, and our post SBA Loan Programs at a Glance may lead you to the 7(a) loan program that is just right for your business. The SBA’s 504 loan program for limited to purchases of fixed assets and real estate.
We will guide you through the different 7(a) programs below.
Current SBA loan rates – as of Febuary 1, 2019
The SBA sets a maximum rate that SBA lenders may charge for their loans. These rates depend on the term of the loan and the principal amount of the loan. In October 2009 the SBA revamped how interest rates were charged to borrows for 7(a) loans. The current methodology includes two components to derive the interest rate – a “Fixed Base Rate” plus the “Allowable Interest Spread.” The fixed rate is the same for all loans and does very per month based on interest rates fluctuations. The Allowable Spread is constant and are designed to provide higher rates for are allowed to charge higher rates for smaller loans or loans with longer terms, which typically have higher costs and risks for banks.
Here is a summary of the current maximum rates SBA banks may charge for loans originating this month:
|Loan Amount||Fixed |
|Max Interest |
|$250,001 - $5,000,000||5.00%||5.5%||10.5%||10.5%|
|$50,001 - $250,000||6.00%||5.5%||11.5%||11.5%|
|$25,001 - $50,000||7.00%||5.5%||12.5%||12.5%|
The published SBA interest rates are good for the entire month, and new rates are published on the first of every month. Since the implementation of the current methodology in October of 2009, the fixed rate component has been as low as 4.44% (December 2012) and as high as 8.47% (November 2018) under the old metholodogy
Beginning November 6, 2018 the SBA went to a new methodology for determining maximum rates. The old system of allowing different interest rates based on loan maturity is gone (in the past lenders could charge more for loans greater than 7 years). In addition, the calculation of the fixed rate and allowable spread has changed. The terminology now is “Fixed Base Rate with Prime.” The Fixed Base Rate ranges from 5.00% for loans over $250,000, 6% for loans between $50,000 and $250,000, 7% for loans between $25,000 and $50,000, and 8.00% for loans under $25,000.
Example 1: For a 7(a) loan (other than SBA Express or Export Express) in the amount of $200,000 with a 7-year maturity, the maximum allowable fixed interest rate was 10.88% [8.13% (SBA Fixed Base Rate for August 2018 based on LIBOR) + 2.75% (SBA maximum spread for loans over $50,000 with a maturity of 7 years or longer)].
The new maximum allowable fixed rate for the same loan would be 11.00% [5.00% (Prime rate for August 2018) + 6.00% (maximum spread over Prime for a fixed rate loan greater than $50,000, but less than $250,000, regardless of the maturity)].
Here is a historical view of the interest rates since the new SBA interest rate methodology was implemented in October 2009. Note that as mentioned above, there is a fixed rate, that changes every month (e.g., the blue line). Adding the allowable spread (which ranges from 2.25% – 4.75% based on the size and term of loan) sums to the total interest rate that may be charged. The chart below shows current rates for loans of $50,000 or more:
Fixed versus Variable Interest Rates for 7(a) loans
Rates for 7a SBA loans may be fixed or variable over time. With a fixed rate loan, the interest stays the same until the loan is paid off or retired. For variable rate loans, the interest rate may change periodically over time but the variable rate may not exceed the maximum allowed rate as set by the SBA. Banks prefer variable rate loans to reduce interest rate risks especially in periods where rates are anticipated to rise over time.
Other Fees and Expenses for SBA 7(a) Loans
In addition to interest charges, a “Guaranty Fee” on the portion of the loan that is guaranteed by the SBA. Typically the SBA will guarantee 75% – 85% depending on the loan. The Guaranty Fee structure depends on the size of the loan:
|Loan Amount||Guaranty Fee|
|$150,001 – $700,000||3.00%|
|$700,001 – $1,00,000||3.50%|
|Amount over $1,000,000||3.75%|
In addition, a fee of .25% is charged for loans of 12 months or less. A prepayment penalty for loans over 15 years may also be assessed during the first 3 years of a loan (5% for year 1, 3% year 2, and 1% during year 3).
Lastly, an ongoing fee of .546% if charged on all 7(a) Loans.
The vast majority in the 7(a) program are Express or Standard Loans. During last year, the SBA processed over $24 billion of loans (numbers below exclude 504 program):
|SBA Loan Program||Int Rate||Total Loan $$||# of Loans||Avg Loan||Avg Term|
|Totals / Averages||6.09%||$18,786,887,275||62,430||$300,927||125|
|Community Advantage Initiative||7.90%||$110,829,646||1,043||$132,349||110|
|FA$TRK (Small Loan Express)||7.24%||$1,072,509,669||29,503||$72,417||78|
|International Trade - Sec, 7(a) (16)||6.21%||$273,556,804||193||$1,604,844||176|
|Lender Advantage Initiative||5.87%||$232,230,284||1,645||$181,477||128|
|Revolving Line of Credit Exports - Sec. 7(a) (14)||5.09%||$307,555,830||169||$2,022,063||12|
|Seasonal Line of Credit||5.73%||$15,036,775||31||$652,242||57|
|Small General Contractors - Sec. 7(a) (9)||5.78%||$4,022,925||9||$593,389||52|
|Standard Asset Based||5.63%||$145,732,900||272||$716,405||66|
Current SBA 504 loan rates – as of August 1, 2018
The SBA 504 loan program is for companies who are looking to purchase fixed assets – heavy machinery, real estate, etc. – so the use of funds is more restrictive than the more popular SBA 7(a) program. However, 504 loans can be a good fit for companies looking to make large purchases and need a 10 or 20 year term.
Interest rates charged for 504 loans is dependent on market conditions and a detailed explanation of this complicated program is beyond the scope of this article. Suffice to say here that banks, Certified Development Companies (CDCs), and the secondary market determine pricing for 504 loans. Most recent rates for 504 loans:
SBA 504 Loans 20 Year Term
|Month||Note Rate||Effective Rate||Refi Rate|
The Note Rate just includes interest for the borrow. The Effective Rate is the rate charged when including service fees and closing costs (in addition to the interest). The Refinancing Rate is the rate for a refinanced loan. Note that rates for 10-Year 504 loans (not published here) are typically .5% less than the 20-Year 504 loans.