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Effective December 15, 2022, the Prime Rate increased from 7.0% to 7.5%. As a result, it is prudent for U.S. Small Business Administration ("SBA") lenders to understand and utilize the appropriate Prime Rate when preparing SBA 7(a) loan documents.
For a refresher on how the SBA governs the interest rates that SBA lenders are allowed to charge on SBA 7(a) loans, reference our previous articles outlining Prime Rate increases throughout 2022 (click here to read).
How should SBA lenders apply this information?
The initial interest rate for a variable interest rate loan for which a complete loan application was received by SBA during the month of December will be calculated, and based upon, the Prime Rate in effect on December 1 (the first business day of December), regardless of the increase in the Prime Rate on December 15, 2022, and regardless of the Prime Rate in effect on the date of the SBA 7(a) loan closing.
The Prime Rate increase also applies to fixed rate SBA loans. As set forth in SOP 50 10 6, the maximum allowable fixed interest rate will be the Prime Rate in effect on the first business day of the month, plus any allowable spread over Prime (click here to navigate to SOP 50 10 6, page 240).
Practical Example #1:
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Prime Rate is 7.0% as of December 1, 2022
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SBA receives a complete loan application on December 30, 2022.
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Loan anticipated to close on January 20, 2023
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Lender should use the Prime Rate of 7.0% in effect on December 1, 2022, in determining the initial interest rate
Practical Example #2:
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Prime Rate is 7.5% as of December 15, 2022
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SBA receives a complete loan application on January 10, 2023
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Loan anticipated to close on January 15, 2023
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Lender should use the Prime Rate in effect on the first business day of January 2023, in determining the initial interest rate.
If your lending institution has questions regarding SBA interest rate requirements, or any other SBA lending matters, please contact Your SBA Legal Department® at SBAQuestions@JellumLaw.com.
This article is provided for general information and educational purposes only. It does not solicit, establish, or continue an attorney-client relationship. The contents should not be construed as legal advice or opinion.
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