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Why are SBA interest rates so high in 2024?

The interest rates for SBA loans are not created arbitrarily. Traditionally SBA rates have been tied to the Prime Lending Rate. The SBA ‘caps’ the amount of interest SBA lenders are allowed to charge loan recipients. This is to ensure that SBA loans remain affordable for small businesses.

The Prime Lending Rate is a baseline interest rate that influenced by the Federal Reserve, aka “The Fed”. The Fed adjusts the ‘federal funds lending rate’, which influences the Prime rate. This is done for lots of reasons, but most typically in reaction to various economic conditions in the US and even the world. While technically it is the federal funds rate that is adjusted, most people just refer to the ‘prime rate’ because it is the baseline used for borrowing.

Economic Recovery Post-Pandemic

The global economy is in a recovery phase after the extensive impact of the COVID-19 pandemic. The economic stimulus and relief packages that were necessary to support businesses and individuals during the pandemic have led to increased government borrowing. As the economy recovers, interest rates are adjusted upwards to manage inflation and stabilize the economy.

Fighting Against Inflation

Inflation significantly influences the cost of borrowing. To combat rising inflation, the Federal Reserve often increases the federal funds rate, aka the ‘prime rate’—a key benchmark for SBA loan interest rates. The goal is to encourage saving over spending, thereby slowing inflation. The Biden Administration has requested rate hikes several times in the aftermath of the pandemic. This also means higher borrowing costs, including for SBA loans.

Prime Rate Influence on SBA rates

The rate for an SBA loan is tied to the Prime Rate and fluctuates whenever the Prime Rate is adjusted by the FED. The table that shows the cap on interest rates for differing SBA loan sizes:

Loan AmountMax Rate
$50,000 or lessPrime + 6.5%
$50,001 to $250,000Prime + 6%
$250,001 to $350,000Prime + 4.5%
$350,001 and upPrime + 3.%
*Current Prime Rate can be checked at Bankrate.com

While the SBA rates are higher than they normally are, they will adjust as the Prime Rate is lowered again. At the end of 2023, with inflation easing, the Federal Reserve hinted that it would start cutting interest rates in 2024. Although we don’t know exactly when this will happen, when it does, SBA rates will adjust accordingly.

By the way, check out this page at Chase Bank which shows all the Prime rate adjustments for the last 40 years. If you think it’s high now, look at June of ’84!

Learn more about how to apply for an SBA loan.

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