Is there a limit on how high my SBA variable rate can go?
Short answer
SBA caps the spread, not the final rate, so your rate can rise with Prime. A lender may add a ceiling and floor. Under 13 CFR § 120.214(b), the floor gap must be at least as wide as the ceiling gap.
SBA's maximum is a base rate plus an allowable spread, so the limit itself moves with Prime. It applies to the initial Note rate and the combined rate at each adjustment (SOP 50 10 8.1, Appendix 18, about p. 397). The loan's fluctuation must equal the movement in the base rate (13 CFR § 120.214(b)).
Unless your Note has a ceiling, no fixed number limits how far the rate can rise.
Ceilings and floors are optional
A lender may limit adjustments with a ceiling and floor if two conditions are met (Appendix 18, Interest Rate Ceilings and Floors, about p. 398):
- Both are stated in the Note.
- The gap between the Note rate and the floor is equal to or greater than the gap between the Note rate and the ceiling.
So a ceiling 2 percentage points above your Note rate requires a floor at least 2 percentage points below it. A floor stops your rate from falling past that level, even if Prime keeps dropping.
An interest rate swap is another tool
SBA permits swaps on new or existing 7(a) loans (Appendix 18, Interest Rate Swap Contracts, about p. 399). SBA is not a party to the swap and does not review it. If the swap seller defaults, you still owe interest under the Note.
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