For SBA lenders
Short answer
When choosing an alternative base rate, lenders should consider market acceptance, transparency, historical volatility, ease of administration, and the rate's alignment with prudent lending practices.
The SBA allows lenders to use alternative base rates (e.g., Term SOFR, Federal Funds Effective Rate) for variable-rate 7(a) loans, provided they are publicly available, widely recognized, and clearly defined in the loan documents. Lenders must select a rate that is reasonable and transparent to the borrower and can be consistently administered.
A lender is structuring a variable-rate 7(a) loan. Instead of Prime, they consider using Term SOFR + a margin. They review Term SOFR's historical stability, how frequently it adjusts, its public availability, and their internal systems' ability to track and apply it accurately.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Alternative Base Rate Options
SOP 50 10 - Lender and Development Company Loan Programs
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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