With the viability of the London Interbank Offered Rate uncertain beyond the end of 2021, the Small Business Administration is changing the base rate for fixed-rate loans in its popular 7(a) program to the prime rate. In a Federal Register filing set to be published tomorrow, the SBA announced that it will set the maximum allowable spread on 7(a) fixed-rate loans at prime plus 6 percent for loans of $250,000 or less (plus an additional spread permitted for loans of less than $50,000) and at prime plus 5 percent for loans over $250,000.
The revised calculation — last adjusted in 2009 — addresses the roughly 300-basis-point difference between the prime rate and the Libor-based fixed base rate. The new maximum allowable spread will no longer depend on the loan term, the SBA said. The revision covers all 7(a) fixed-rate loans, except for those in the SBA’s Export Working Capital and Community Advantage programs. The agency will address a Libor replacement for variable-rate loans in a future rulemaking. The new rule takes effect upon publication.
