Can an SBA lender raise my interest rate if I default?
Short answer
Usually no. SOP 50 10 8.1, Appendix 18 bars default interest rates on 7(a) loans. SBA Express and Export Express are exceptions. On SBA Express, a default rate is allowed, if commercially reasonable and consistent with the lender's similar non-SBA loans.
A default interest rate is an increase in the rate charged after a default event. SOP 50 10 8.1, Appendix 18, Para. A.1 (p. 395) says default rates are not permitted on 7(a) loans. Para. B.2 (p. 401) repeats that rule for 7(a) Small loans.
SBA Express
Express loans are an exception (Appendix 18, Para. B.3, p. 401). The lender must use appropriate, commercially reasonable default rates consistent with those on similar non-SBA loans. On a variable-rate Express loan, the rate throughout the term may not exceed the maximum allowable 7(a) rate.
An Express Note can also include non-financial default provisions. These are conditions that can put a loan in default even when all payments are made. They must be substantive, agreed to in writing at closing and consistent with the lender's similar non-SBA loans (Section B, Chapter 2, Para. B.4, p. 126).
Export Express
A lender may charge a default rate on Export Express if it does so on similar non-SBA loans. The rate may not exceed the Export Express maximum (Appendix 18, Para. B.6).
Late fees are separate
A late fee can be up to 5% of the regular payment when more than 10 days late (Section A, Chapter 4, Para. C.2.d; 13 CFR § 120.221(d)). Check your Note for any default rate before you sign.
Sources
- SOP 50 10 8.1, App. 18, Para. A.1 (p. 395) and Paras. B.2, B.3 (p. 401)
- SOP 50 10 8.1, App. 18, Para. B.6, Export Express Loans (about p. 402)
- SOP 50 10 8.1, Sec. B, Ch. 2, Para. B.4, Non-Financial Default Provisions (p. 126)
- 13 CFR § 120.221(d), Late payment fee
- SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.2.d, Late Payment Fee (about p. 69)
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