E9-23558. Business Loan Program Maximum Allowable Fixed Rate

AGENCY:

U.S. Small Business Administration (SBA).

ACTION:

Notice announcing maximum allowable fixed rate.

SUMMARY:

This Notice announces the maximum allowable fixed rate for 7(a) guaranteed loans.

DATES:

This Notice is effective October 1, 2009.

FOR FURTHER INFORMATION CONTACT:

The Lender Relations Specialist in the SBA district office nearest you. The list of offices can be found at http://www.sba.gov/​localresources/​index.html.

SUPPLEMENTARY INFORMATION:

Agency regulations at 13 CFR 120.213(a), Fixed Rates for Guaranteed Loans, state the following: “A loan may have a reasonable fixed interest rate. SBA periodically publishes the maximum allowable rate in the Federal Register.”

For a number of years, the SBA maximum allowable fixed rate has been based on the Prime rate. Because the Prime rate is a short term rate, very few lenders have been willing to make long term SBA Section 7(a) loans with a fixed rate. In order to provide small businesses with an opportunity to lock in the fixed interest rates available in the market today, SBA is revising how the maximum allowable fixed rate is calculated. Effective October 1, 2009, the SBA maximum allowable fixed rate for 7(a) loans (other than SBA Express and Export Express loans) will utilize a new base rate for fixed rate loans (Fixed Base Rate) plus the maximum allowable spreads that are already being used on variable rate loans.

The Fixed Base Rate for a 7(a) loan will be calculated as follows: The SBA LIBOR Base Rate (defined in 13 CFR 120.214 as the 1-month LIBOR in effect on the first business day of the month as printed in a national financial newspaper each business day PLUS 300 basis points), plus the average of the 5-year and 10-year LIBOR swap rates in effect on the first business day of the month as printed in a national financial newspaper published each business day. In other words, the Fixed Base Rate is based on the rate a borrower would pay if it purchased a floating-to-fixed rate swap contract on a 7(a) loan. A swap rate factors in what the money markets identify as the likely difference between a variable rate and a fixed rate over a set period of time. SBA chose to use the average of the 5-year and 10-year LIBOR swap rates in the calculation of the maximum allowable fixed rate because these rates are published in a financial newspaper on a daily basis and the average of these two rates will provide a basis for a maximum allowable fixed rate appropriate both for shorter term and longer term loans.

The maximum allowable fixed rate for 7(a) loans (excluding SBA Express and Export Express) will be the Fixed Base Rate plus the allowable interest rate spreads identified in 13 CFR 120.214 (d) and (e) and 13 CFR 120.215. (For SBA Express and Export Express loans, the maximum allowable interest rate is the prime rate plus 6.5 or 4.5 depending on the loan amount. See SOP 50 10 5(B), Subpart B, Chapter 3. SOP 50 10 5(B) may be found at http://www.sba.gov/​aboutsba/​sbaprograms/​elending/​reg/​index.html.)

The following is an example for 7(a) loan applications (other than SBA Express and Export Express), submitted to SBA in the month of September 2009 if the new policy had been in effect:

The SBA LIBOR Base Rate for September is 3.26.

The 5-year LIBOR swap rate on the first business day of September as published in a national financial newspaper was 2.72 (rounded to the second decimal). The 10-year LIBOR swap rate on the first business day of September as published in a national financial newspaper was 3.60 (rounded to the second decimal). The average of these two rates is 3.16.

The SBA Fixed Base Rate for loans submitted to SBA during September 2009 would have been 6.42 [3.26 (SBA LIBOR Base Rate) + 3.16 (average of 5-year and 10-year swap rates)].

Thus, the maximum allowable fixed rates for 7(a) loans (other than SBA Express and Export Express) submitted to SBA in September 2009 would have been as follows:

For 7(a) loans with a maturity less than 7 years: 6.42 (SBA Fixed Base Rate for September) + 2.25 (maximum spread for loans with a maturity less than 7 years) equals 8.67 (maximum allowable fixed rate). If the loan amount is over $25,000 but not exceeding $50,000, the maximum allowable fixed rate may be increased by one percentage point. If the loan amount is $25,000 or less, the maximum allowable fixed rate may be increased by two percentage points.

For 7(a) loans with a maturity of 7 years or more: 6.42 (SBA Fixed Base Rate for September) + 2.75 (maximum spread for loans with a maturity of 7 years or more) equals 9.17 (maximum allowable fixed rate). If the loan amount is over $25,000 but not exceeding $50,000, the maximum allowable fixed rate may be increased by one percentage point. If the loan amount is $25,000 or less, the maximum allowable fixed rate may be increased by two percentage points.

The maximum allowable fixed rates will be posted monthly on SBA's Web site at http://www.sba.gov/​aboutsba/​sbaprograms/​elending on the second business day of the month, in the afternoon. SBA will review the newspaper on the second business day of the month to determine the SBA LIBOR Base Rate and the LIBOR swap rates in effect on the first business day of the month and will use those rates in the calculation.

The new maximum allowable fixed rates identified in this Notice will be available for 7(a) loan applications (other than SBA Express and Export Express) received by SBA on or after October 1, 2009.

Questions on the maximum allowable fixed rates may be directed to the Lender Relations Specialist in the local SBA district office. The local SBA district office may be found at http://www.sba.gov/​localresources.

Authority: 15 U.S.C. 636(a)(4)(A) and 13 CFR 20.213.

Richard C. Blewett,

Acting Director, Office of Financial Assistance.