If you’re shopping SBA financing, the “rate” you see in a quote is only one part of what you’ll pay. The real story is SBA loan cost, a blend of market rates, lender risk-based pricing, SBA program rules (like interest rate caps), and a set of fees (some charged by lenders, some paid to the SBA).
The benchmark rates that move SBA loan rates
Prime Rate: the most common benchmark for SBA 7(a)
Prime Rate is a widely used benchmark for business loans, and SBA 7(a) variable rates are commonly quoted as Prime Rate + spread (margin). The St. Louis Fed explains Prime as a base rate posted by large U.S. banks and used to price short-term business loans.
Federal Funds Rate: why the Fed affects Prime and market rates
The Federal Funds Rate is the overnight rate at which banks lend reserve balances to each other, and the Federal Reserve steers it into a target range as its main policy rate. Changes here influence broader interest rates, including Prime and business lending conditions.
Treasury Yield: the backbone for SBA 504 rate setting
For SBA 504, SBA states 504 interest rates are pegged to an increment above current market rates for 10-year U.S. Treasury issues. That’s why Treasury yields are central to long-term fixed-asset financing.
Inflation: the background force behind “rate pressure”
Inflation is the general rise in prices over time. BLS explains the CPI measures the average change over time in prices paid by consumers for a basket of goods and services, commonly used as a measure of consumer inflation. Higher inflation can contribute to higher benchmark rates and tighter credit conditions.
Market Rates: the environment lenders price inside
Market rates reflect the overall interest-rate environment and competition (benchmarks + credit conditions). Your SBA quote is a “market rate” outcome plus deal-specific risk factors and SBA rules.
How lenders set spread, caps, and fixed vs variable rates
Interest Rate Spread: the margin over the benchmark
An interest rate spread is the difference between the benchmark (like Prime) and your loan’s interest rate, your “risk premium.” Lenders use this spread to compensate for borrower risk, collateral strength, and deal complexity.
Risk-Based Pricing: why two borrowers get different rates
Risk-based pricing means lenders adjust pricing based on credit risk (cash flow stability, leverage, industry volatility, collateral coverage, and sponsor experience). The SBA guarantee can reduce the lender’s loss exposure, but it doesn’t eliminate underwriting or pricing differentiation.
Interest Rate Cap: the SBA’s borrower protection on many 7(a) variable loans
SBA 7(a) rates are negotiated between borrower and lender, but SBA states they are subject to SBA maximums pegged to Prime (or an optional peg rate). SBA publishes maximum variable-rate tiers by loan size, these are the interest rate caps in practice.
SBA 7(a) maximum variable rates (cap = base + spread):
- $50,000 or less: Base + 6.5%
- $50,001 to $250,000: Base + 6.0%
- $250,001 to $350,000: Base + 4.5%
- Greater than $350,000: Base + 3.0%
Fixed Interest Rate / Fixed Rate: predictability vs flexibility
A fixed interest rate (fixed rate) stays the same over the loan term, predictable payments, but you may pay a premium when market rates are high. SBA also notes fixed-rate maximums are published (for 7(a)) via SBA’s lender resources (FTA wiki).
A variable interest rate (fixed rate) changes over the loan term based on the margin over the index. The majority of SBA 7(a) loans are priced at a variable rate tied to Prime.
SBA fees and lender fees that shape SBA loan cost
SBA Fee: the two big SBA program fees on 7(a)
SBA describes two major fees lenders pay SBA for 7(a):
- Guarantee Fee (Upfront Fee / SBA Guaranty Fee)
- Lenders must pay it, and SBA states lenders are permitted to pass it to the borrower. In our experience, most SBA 7(a) lenders do pass it on to the borrowers.
- Annual Service Fee (SBA On-Going Guaranty Fee)
- SBA states this is based on the guaranteed portion’s outstanding principal balance at approval, and cannot be charged to the borrower.
These SBA fees are a core part of “SBA loan cost,” even when your interest rate looks competitive.
Origination Fee, Servicing Fee, Loan Packaging Fee: what lenders/agents may charge
SBA rules restrict what lenders may collect from applicants/borrowers. Under 13 CFR 120.221, lenders may charge reasonable service and packaging fees (customary for similar lenders in the geographic area), must disclose the applicant isn’t required to purchase unwanted services, and SBA may review/refund fees deemed unreasonable.
This is where common line-items can appear (terminology varies by lender and broker):
- Origination fee (initial processing/underwriting/closing cost)
- Loan packaging fee (assembling the SBA loan file and documentation)
- Servicing fee (ongoing administration, distinct from SBA’s Annual Service Fee, which the lender pays SBA and cannot pass through)
Represent and compare: APR and loan benchmarking (how to compare offers correctly)
APR: the cost metric that combines rate + many fees
The CFPB explains APR is a measure of the interest rate plus additional fees charged with the loan, a more complete way to compare borrowing cost than the note rate alone.
Loan Benchmarking: compare spread, APR, and total cost
Loan benchmarking is the practice of comparing offers across lenders using consistent metrics:
- Rate expressed as Prime + spread
- APR (apples-to-apples where possible)
- Total fees (SBA guaranty fee, third-party costs, lender service/packaging fees)
- Structural terms (maturity, amortization, collateral, covenants)
Where SBARates.com helps: SBARates.com is a data-driven SBA lending intelligence platform and lender directory that helps borrowers evaluate lender “pricing culture” (for example, typical spreads over Prime) and identify lenders active in specific SBA programs and industries.
Interest accrual and why timing matters
Interest Accrual: interest builds daily on outstanding balances
Interest accrual is interest accumulating over time based on your outstanding principal (often calculated on daily balances). In SBA’s secondary market guidance, SBA notes interest continues to accrue until payment is received by the Fiscal Transfer Agent (FTA) for certain prepayment processes, highlighting how timing affects interest cost.
Groups, packages, and sells: Pooling and the SBA secondary market
Pooling: bundling SBA-guaranteed portions for investors
There is an active secondary market for SBA 7(a) loans. SBA explains lenders can sell the guaranteed portion to increase liquidity and make more loans.
In regulation, the SBA secondary market includes certificates representing interests in:
- the guaranteed portion of an individual 7(a) loan, or
- a pool consisting of guaranteed portions of multiple 7(a) loans (this is pooling).
This matters because secondary-market execution influences lender economics and, indirectly, how aggressively some lenders price and structure SBA loans.
Prepayment penalty rules (7(a) and beyond)
Prepayment Penalty (7(a))
SBA states that for 7(a) loans with a maturity of 15 years or longer, a prepayment penalty applies when a borrower voluntarily prepays 25% or more of the outstanding balance within the first 3 years after first disbursement. SBA also lists the fee schedule (5% year 1, 3% year 2, 1% year 3).
Prepayment penalties can change the “best” choice between fixed vs variable, or between lenders offering different term structures.
SBA 504 and why Treasury yield matters
SBA states 504 rates are pegged to an increment above the current market rate for 10-year U.S. Treasury issues. That’s why Treasury yield movements can quickly change 504 effective rates across funding cycles.
Quick glossary (the “stack” that creates SBA loan cost)
- Benchmark rates: Prime Rate, Federal Funds Rate, Treasury Yield, Market Rates
- Pricing mechanics: Interest Rate Spread, Risk-Based Pricing, Interest Rate Cap, Fixed Rate
- Fees: Guarantee Fee, Annual Service Fee, Origination/Packaging/Servicing fees (as allowed), SBA Fee
- Cost comparison: APR, Loan Benchmarking, SBA Loan Cost
- Market plumbing: Pooling, interest accrual, prepayment penalty
Frequently Asked Questions (collapsible)
What is the difference between APR and interest rate?
CFPB explains the interest rate is the cost you pay to borrow money, while APR measures the interest rate plus additional fees charged with the loan, making APR a better comparison tool in many cases.
What are SBA’s interest rate caps for 7(a) variable loans?
SBA states 7(a) rates are subject to SBA maximums pegged to Prime (or an optional peg rate). SBA publishes maximum variable tiers by loan size (e.g., Prime/Base + 6.5%, +6.0%, +4.5%, +3.0%).
Can the lender pass the SBA Annual Service Fee to the borrower?
No. SBA states the lender’s Annual Service Fee (SBA On-Going Guaranty Fee) cannot be charged to the borrower.
What is the SBA Guarantee Fee?
SBA states lenders must pay an Upfront Fee (SBA Guaranty Fee) for each 7(a) loan, and lenders are permitted to pass that cost to the borrower.
Why do SBA 504 rates move with Treasury yields?
SBA states 504 interest rates are pegged to an increment above current market rates for 10-year U.S. Treasury issues, so Treasury yield changes influence 504 rate levels.
What is pooling in SBA lending?
SBA’s secondary market regulations define pool certificates as interests in a pool consisting of the SBA guaranteed portions of multiple 7(a) loans. SBA also notes lenders can sell guaranteed portions in the secondary market to increase liquidity.
When does a 7(a) prepayment penalty apply?
SBA states that for 7(a) loans with maturities of 15 years or longer, a prepayment penalty applies when the borrower voluntarily prepays 25% or more of the outstanding balance within the first 3 years after initial disbursement, with a 5%/3%/1% schedule by year.