Effective May 4, 2023, the Prime Rate increased from 8.0% to 8.25%. 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 (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 May will be calculated, and based upon, the Prime Rate in effect on May 1 (the first business day of May), regardless of the increase in the Prime Rate on May 4, 2023, and regardless of the Prime Rate in effect on the date of the SBA 7(a) loan closing. SBA has clarified that the date the “complete loan application is received by SBA” is the date the loan is approved and assigned a loan number (for both delegated and non-delegated processing).

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).

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.