Variable rate SBA loan

February 01, 2023

by a searcher in Dallas, TX, USA

Hello

I just got approved for an SBA 7a loan yesterday.

The lender sent me an email highlighting the terms.
With the potential that the fed may continue to raise rates this year...; i'm a bit nervous about taking on a variable rate loan that is 2.75% over WSJ Prime.

It's a service based business with no real estate involved.

Do all 7a lenders do variable rate loans only? or are there any fixed rate loan options?
Banks seem to interpret the rules to their whims sometimes so i'm curious.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

There are a handful of national banks that offer very competitive fixed rate loans on SBA 7A loans. We run all of our deals by those Banks. However, I find those Banks do less than 5% of the deals we show them. Most have restrictions on the types of businesses they lend on, they are looking for heavy collateral, they want to see strong post closing liquidity, and they have low limits on how much exposure they will take against goodwill. They are also slow as molasses in underwriting.

Just about all other Banks offer variable rate pricing. There are several reasons for this which I can discuss at length later. But the market is variable rate pricing for the most part. I have seen a few Banks offering to fix rates. Usually those fixed rates are being offered slightly above the variable rate pricing today. I am not recommending our clients take those higher fixed rates because if interest rates come back down, which I believe they will later this year into next year, they will then be stuck at a higher rate.

I hope this information is of help. I would be more than happy to jump on a call to discussion your or anyone else's concerns about interest rates at any time. You can ping me here or directly at redacted

Reply by a lender
from Pennsylvania State University in Tampa, FL, USA

Thanks ^redacted‌! - The terms of the loan regarding fixed vs. variable would be the decision of the bank. That being said the variable component for a transaction to finance goodwill is not uncommon. A key factor here is that with a 20-day notification you can pay off without penalty - In my opinion, that is a substantial benefit. If you'd like to see an apples-to-apples comparison of what you've been offered to potentially see a more attractive structure, I'm easily reached at redacted or by call/text any time at###-###-#### .

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