SBA rules · SOP 50 10 8.1
Can an SBA loan have a fixed interest rate?
Yes, an SBA loan can have a fixed interest rate, subject to published limits for 7(a) loans and market-based pricing for 504 debentures.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- 7(a) fixed rate limits: A 7(a) loan may have a fixed interest rate negotiated between the lender and applicant, but it cannot exceed the maximum allowable fixed rate published periodically by SBA in the Federal Register (Prime rate in effect on the first business day of the month plus an allowable spread over Prime, published on the FTA Wiki). The fixed rate must remain in effect for the entire term of the loan without adjustment or reset, and the specific rate must be stated in the Note.
- 7(a) combination structures and EWCP: A lender may use a fixed rate on either the guaranteed or unguaranteed portion and a variable rate on the other portion, provided neither exceeds the SBA maximum interest rate. For Export Working Capital Program (EWCP) loans, SBA does not prescribe interest rates but monitors them for reasonableness.
- 504 debenture rates: Debenture interest rates for 10-, 20-, and 25-year 504 debentures are fixed when sold, based on market conditions for long-term government debt at the time of sale. The 10-year Treasury Rate is commonly used as a benchmark for 20- and 25-year debentures, and the 5-year Treasury Rate is used for 10-year debentures.
- 504 Third Party Lender loans: The interest rate on the Third Party Loan must be reasonable. Third Party Loans may be fixed or variable, and lenders may utilize interest rate swap contracts to stabilize the borrower's payment.
The source
What the SOP says
“A loan may have a fixed or variable interest rate. The maximum interest rate that may be established for any 7(a) loan is governed by SBA’s regulations on interest rates, which preempts any provisions of a state’s constitution or law. The Lender negotiates the interest rate with the Applicant, subject to SBA’s maximum allowable rates.
“SBA will periodically publish the maximum allowable fixed interest rate in the Federal Register. The maximum allowable fixed interest rate will be the Prime rate in effect on the first business day of the month, plus an allowable spread over Prime, as set forth in the most recent Federal Register Notice. For a listing of the current maximum allowable fixed interest rates, go to SBA’s Fiscal Transfer Agent (FTA) Wiki. The maximum allowable fixed rate may only be used by a Lender if such rate will be in effect for the entire term of the loan, without adjustment or reset. Otherwise, the maximum rates for variable rate loans will apply.
“The Lender may use a fixed rate on either the guaranteed or unguaranteed portion and a variable rate on the other portion of the loan. SBA allows such combinations as long as neither rate exceeds the SBA maximum interest rate.
“SBA does not prescribe the interest rates for the EWCP but will monitor these rates for reasonableness. 13 CFR § 120.344(c)
“The interest rate for 10, 20, and 25 year 504 debentures is based on market conditions for long-term government debt at the time of sale. Most commonly, the 10-year Treasury Rate is used as a benchmark for the 20-year and 25-year debenture rates, and the 5-year Treasury Rate is used as a benchmark for the 10-year debenture rate. (13 CFR § 120.932)
“Interest rate is reasonable.
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.