For SBA lenders
Short answer
A lender determines the alternative base rate for a variable rate 7(a) loan based on its internal lending policies, operational capabilities, and the prevailing market conditions. The chosen rate must be one of the SBA-approved options, such as the WSJ Prime Rate, SOFR, or Term SOFR.
SBA allows lenders to use several approved alternative base rates for variable interest rate 7(a) loans, including the Wall Street Journal Prime Rate, a 1-month or 3-month Term SOFR, or the SOFR ABR. Lenders select a base rate and then add a permitted spread. The choice is typically driven by the lender's existing portfolio structure and funding costs.
A lender decides to use the 1-month Term SOFR as its base rate for all new variable rate 7(a) loans. This decision is based on the lender's funding model and hedging strategies. For a $500,000 loan, the lender would then apply the authorized spread (e.g., SOFR + 2.75%) to determine the borrower's interest rate.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
7(a) Alternative Base Rate Options
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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