WASHINGTON–New alternative base rate options for variable interest rate loans made under the loan program for credit unions that are Small Business Administration 7(a) lenders.
The new options were first reported by America’s Credit Unions, which noted that many credit unions are part of the 7(a) program, which allows the government to guarantee up to 85% of a loan. The guaranteed portions do not count against the member business lending cap of 12.25% of assets.
America’s Credit Unions noted that currently, a 7(a) lender may use either the Prime rate or the Optional Peg Rate as the base rate when determining the interest rate for such loans. The SBA’s new options permit the use of three additional “Alternative Base Rate” options:
- 5-year Treasury Note Rate
- 10-year Treasury Note Rate
- Secured Overnight Funding Rate (SOFR). (collectively, “Alternative Base Rates”)
Following the Guidance
America’s Credit Unions said lenders choosing to use one of the Alternative Base Rates must follow the SBA’s guidance establishing the maximum interest rate allowed for a loan based on its amount.
“When using one of the Alternative Base Rate options, the maximum interest rate that can be charged by the lender shall not exceed Prime plus the allowed spread for that loan amount,” the trade group said.
SBA will publish the 7(a) alternative base rate options on its website each month, along with the Prime rate and SBA Optional Peg Rate.
The rule is effective starting March 1.
