SBA 7(a) Program Switches Fixed Base Rate from Libor to Prime

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.