Can an SBA lender hold my rate steady for the first few years and then let it float?
Short answer
Yes. SOP 50 10 8.1, Appendix 18 lets lenders delay the first rate adjustment and notes periods as long as 5 years. The loan is still a variable-rate loan, so the variable caps apply.
Lenders may delay the first rate adjustment on a variable-rate 7(a) loan. SOP 50 10 8.1, Appendix 18 (Frequency of Interest Rate Adjustment, about p. 397) says lenders have used periods as long as 5 years. The rate then begins to move as set out in the loan terms.
Why this is not a fixed-rate loan
SBA's maximum fixed rate applies only if the rate holds for the entire term, with no reset (Appendix 18, Para. A.1). A rate that holds for 5 years and then floats does not meet that test. The variable cap for your loan size applies: Prime plus 3.0 to 6.5 percentage points, depending on loan size.
What the Note must state
Appendix 18 requires the Note to list:
- The initial interest rate
- The date or timing of the first rate adjustment
- The frequency of rate adjustment
- The base rate and the spread
After the first adjustment, the rate can change no more often than monthly.
What SBA does not say
The 5-year figure is an example, not a stated limit. Appendix 18 does not set a longest delay. Whether a lender offers this structure, and for how long, varies by lender.
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