Effective November 3rd, 2022, the Prime Rate increased from 6.25% to 7.0%. 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 November will be calculated, and based upon, the Prime Rate in effect on November 1 (the first business day of November), regardless of the increase in the Prime Rate on November 3, 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:

  • Prime Rate is 6.25% as of November 1, 2022
  • SBA receives a complete loan application on November 30, 2022.
  • Loan anticipated to close on December 20, 2022
  • Lender should use the Prime Rate of 6.25% in effect on November 1, 2022, in determining the initial interest rate

Practical Example #2:

  • Prime Rate is 7.0% as of November 3, 2022
  • SBA receives a complete loan application on December 10, 2022
  • Loan anticipated to close on December 15, 2022
  • Lender should use the Prime Rate in effect on the first business day of December, 2022, in determining the initial interest rate.