WASHINGTON--Credit unions that are Small Business Administration 7(a) lenders now have access to new alternative base rate options for variable interest rate loans made under the loan program, America's Credit Unions pointed out.
Many credit unions are part of the 7(a) program, which allows the government to guarantee up to 85% of a loan, and those guaranteed portions do not count against the member business lending cap of 12.25% of assets, ACU noted.
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 published the new options Wednesday, which permits 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”)
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, ACU noted.
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.