Projected SBA Rates and Impacts Assuming Upcoming Cuts

by a searcher from University of Florida

4 months ago

Hi all,

Wondering what SBA rates will adjust to once the Fed cuts rates, assuming they cut either 0.25% or 0.5%

How do you calculate this? When would they adjust? How do we expect this to influence M&A activity and multiples? Any other impacts?

Thanks!

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8 comments

searcher

SBA rates are tied to the prime rate, which follows the Fed’s rate cuts. If the Fed reduces rates by 0.25% or 0.5%, SBA rates should adjust accordingly, usually within a few days or weeks, depending on loan terms. Of course, each lender may have a different approach and rate premium they will add to the prime rate. You'll have to get term sheets and speak with lenders to know their specific approaches and typical premiums. Lower rates generally boost M&A activity by making debt financing cheaper. In theory, this should increase deal demand and multiples. However, economic conditions (and this year's political considerations) could influence how much this benefits the market amongst other things. It's important to know, but I agreed with Mihir that this shouldn't be breaking your deal; otherwise, you need to build in some more significant margins of safety in your structuring.

4 months ago | like reply | 1 like

searcher

I would wait and see.

4 months ago | like reply | 0 likes

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