As mentioned in our Ultimate Guide to SBA Loans, there are two primary types of SBA loans: 7A loans and CDC / 504 Loans. SBA 7A loans can be used for a variety of purposes, while CDC / 504 loans are specifically for the purchase of real estate.
December 2016 Maximum interest rates on SBA 7A Loans range from 5.75 % to 8.25 %. Full Table
December 2016 Maximum interest rates for the CDC portion of CDC / 504 Loans currently range from 3.93 % to 4.57 % including fees. Full Table
Before reading further, make sure you are qualified. Though there are exceptions, and startups are sometimes eligible, there are five general requirements for getting an SBA loan:
- In business at least 2 years
- Personal credit score is 680+ (check your score for free here)
- Seeking at least $30,000
- At least $50,000 in revenues for the past 12 months
- Business is profitable
Sound like you? We recommend applying with SmartBiz. They are the best company we have found at providing quick turnarounds on SBA loan approvals, and you can find out how much you qualify for in 5 minutes.
Don’t meet these qualifications? Check out our Complete Overview of Small Business Financing Options.
Current SBA (7A) Loan Interest Rates and Explanation
The Small Business Administration (SBA) sets the maximum interest rates that banks can charge on 7A loans. The current maximum interest rate ranges from from 5.75% – 8.25%, depending on the size of the loan and the amount being borrowed.
The maximum interest rates on SBA 7A loans are also based on market interest rates. As market interest rates change, so will the maximum interest rates on these loans.
Maximum Interest Rates on SBA 7A Loans for December 2016
Standard 7a (Repayment Term Less Than 7 Years)
Standard 7a (Repayment Term 7 Years or Greater)
Less Than $25K
7.75% (3.50% base rate + 4.25% markup)
8.25% (3.50% base rate + 4.75% markup)
$25k – 50K
6.75% (3.50% base rate + 3.25% markup)
7.25% (3.50% base rate + 3.75% markup)
5.75% (3.50% base rate + 2.25% markup)
6.25% (3.50% base rate + 2.75% markup)
Detailed SBA 7(a) Interest Rate Explanation* Please note SBA 7A Express loans carry a higher interest rate for similar size amounts and terms than the standard 7A loans above. We recommend avoiding SBA Express loans as firms like SmartBiz can provide approval for the standard 7A with similar turnaround times.
As the table above shows, the maximum interest rate on SBA 7(a) loans is based on three factors:
- A base rate (one of the following publicly available interest rate measures): Prime Rate, LIBOR (one month) + 3.0%, or SBA Peg Rate
- The term of the loan: Less than 7 years or greater than 7 years. For example, 3 and 5 year loans would all fall into the same category of under 7 years.
- The size of the loan: Under $25,000, $25,000 to $49,999, and over $50,000. For example, loans of $30,000 and $45,000 will fall under the same category.
As the table shows, loans longer than 7 years have a maximum interest rate which is half a percent higher than similar size loans that are for terms that are less than 7 years.
Loans for more than $50,000 have 1% lower maximum interest rates than loans between $25,000 and $49,999 when taken for similar terms. Similarly, loans for $25,000 to $49,999 have 1% lower maximum interest rates than loans for less than $25,000.
Fixed vs. Variable SBA Interest Rates
7A loans can have a fixed or variable interest rate. With a fixed rate loan, the loan interest rate remains constant throughout the life of the loan. With a variable rate loan, the loan’s interest rate can change (often referred to as a reset) at regular intervals, such as quarterly or monthly.
With variable rate SBA 7A loans, the rate is reset based on one of three publicly available market interest rate numbers, plus a fixed percentage. The interest rate must always be at or below the maximum interest rate set by the SBA. For smaller size SBA loans (for example those under $500,000), banks tend to offer only variable rate loans, with interest rates at or close to the maximum allowable by the SBA.
The Base Rate And Interest Rate Resets
Banks can choose one of three market interest rate measures as their base rate. These are the prime rate, LIBOR + 3.0%, or the SBA peg rate. While there are small differences between these rates, they tend to track each other very closely. The Prime Rate is the one that’s most commonly used.
Rates as of December 1, 2016:
- Prime Rate: 3.50% (source: WSJ)
- LIBOR (one month) + 3.0%: 3.62% (source: Bankrate)
- SBA PEG Rate: 1.75% (source: National Association of Government Guaranteed Lenders)
These rates can go up or down based on market conditions. Currently, they are at decade low levels. Over the last 10 years, the Prime Rate has been as high as 8.3%.
With a variable rate SBA 7A Loan, as market interest rates rise so will the rate on the loan. Let’s take the example of a 10 year loan for $50,000 with interest rates rising by 2%.
The maximum interest rate on the loan currently would be 6.25%, with a monthly payment of $561.40 per month. With a 2% rise in interest rates upon the interest rate reset, the rate would be 8%, with a monthly payment of $613.26 (this would be the monthly increase for a newly issued loan. If the the loan was older, the increase in monthly payment would be lower).
Interest Rates Are Not The Only Costs To Borrowing Money: APR/APY
When taking a loan, there is often an origination fee. This fee supposedly covers the costs of the bank or financial institution of making the loan, including marketing costs. However, the origination fee is not directly based on costs and is arbitrarily set by the financial institution. An origination fee of 4% is not unusual. The fee is typically taken “off the top”. For example, a borrower taking a $50,000 loan with a 4% origination fee would only receive $48,000.
SBA 7(a) loans also have a guarantee fee. Initially, the lender pays this fee to the SBA, but it’s almost always passed on to the borrower at closing. Currently, the SBA has waived fees for loans under $150,000. Above that, the fee typically ranges from 3 % to 3.5 % of the guaranteed portion of the loan. The exact percentage depends on the size of the loan and the length of the loan. For example, if a borrower takes a $250,000 10-year 7a loan, the SBA may guarantee 75 % of that, or $187,500. 3 percent of that amount, or $5,625, is the guarantee fee that will be charged to the borrower. For more info, click here.
The true cost of borrowing money (interest rate + fees) is often called the APY (Annual Percentage Yield) or APR (Annual Percentage Rate). On a ten year SBA loan, the effect of fees can create an APR or APY that is around 1% higher than the loan’s interest rate. The shorter the loan the bigger the impact that fees will have on the APY/APR.
What size SBA loan could you qualify for? Apply with SmartBiz and get an estimate in minutes.
December 2016 SBA Loan Rates On Real CDC / 504 Loans
The Small Business Administration (SBA) sets the maximum interest that banks can charge on CDC/504 loans. The current maximum interest rate ranges from from 3.93% to 4.57%, depending on the size of the loan and the amount being borrowed.
The maximum interest rates on CDC/504 loans are also based on market interest rates. As market interest rates change, so will the maximum interest rates on these loans.
While a 7A SBA Loan can be used to purchase real estate, a Real CDC / 504 Loan will tend to provide borrowers with tremendous interest rate savings. A CDC / 504 loan is composed of two loans:
- A loan from a financial institution (bank) for typically 50% of the price of the property, equipment, and building upgrades.
- A loan from a Certified Development Company (a non-profit) for 40% of the price.
The remaining 10 % is a down payment from the borrower. The interest rates on the bank portion of the loan are not set by the SBA. However, the interest rates on the these loans tend to be very low, currently in the mid-single digits. Because the bank loan is senior to the CDC loan and the loan is backed by real-estate, there is a low risk that the bank will not be able to get back the money it loans. The low-risk is reflected in the low-interest rates.
The maximum interest rate on the CDC portion of the loan is set by the SBA.
If you’re in the market for commercial real estate and will occupy at least 51% of the space, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have credit score is above 680 (check here for free), you’ve been in business 4+ years, are profitable, and need more than $500k, speak with Liberty SBF today.
December 2016 Maximum Interest Rates CDC Loan (using treasury rates for December 1, 2016)
Term of Loan
Maximum Interest Rate
5 Year Treasury (Currently 1.85%)
3.93% (1.85% 5 Year Treasury rate + 0.38% fixed rate + 1.7% ongoing fees)
10 Year Treasury (Currently 2.39%)
4.57% (2.39% 10 year treasury rate + 0.48% fixed rate + 1.7% ongoing fees)
- A ten year CDC/504 loan will have an interest rate which combines the current 5 year treasury rate, a fixed rate of 0.38%, and 1.7% in annual fees. As the table shows, the interest rates are based on the length of the loan:
- A twenty year CDC/504 loan will have an interest rate which combines the current 10 year treasury rate, a fixed rate of 0.48%, and 1.7% in annual fees.
Unlike a 7A loan, the loan rates for the CDC portions of an SBA 504 loan are fixed for the life of the loan and will not go up or down. The portion of the loan provided by the bank, credit union, or non-bank lender does not need to be fixed (it may have a variable rate, a balloon payment, etc.).
How do SBA Rates Compare To Interest Rates On Normal Commercial Loans?
This is a trick question. In theory, if you can get approved for a conventional commercial bank loan, the banking institution is not supposed to submit your application for an SBA loan. However, in general banks are not interested in making loans of under $300,000 to small businesses. The portion of business loans which banks make that are under $1 million dollars has been shrinking for decades. The SBA guarantee against non-payment makes these loans less risky and potentially more profitable for banks. Without an SBA guarantee, these loans would probably not be financed at all.
If you are interested in applying for an SBA Loan we recommend checking out SmartBiz. They are the best lender we have found at providing quick turnarounds on SBA loan approvals, and you can find out how much you qualify for in 5 minutes.