SBA Procedural Notice 5000-875051 7(a) Alternative Base Rate Options
Summary
SBA Procedural Notice, Control No. 5000-875051, published February 6, 2026 and effective March 1, 2026, to SBA employees, 7(a) lenders and 504 certified development companies, on 7(a) alternative base rate options. It announces alternative base rate options that 7(a) lenders may use for variable rate loans and amends SBA SOP 50 10 8 to reflect them. It cites 13 CFR § 120.214(c), under which SBA may permit the use of alternative base rate options that are widely adopted.
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SBA Procedural Notice
TO: All SBA Employees, 7(a) Lenders, and 504 CONTROL NO.: 5000-875051
Certified Development Companies
PUBLICATION: February 6, 2026
SUBJECT: 7(a) Alternative Base Rate Options EFFECTIVE: March 1, 2026
The purpose of this Notice is to announce alternative base rate options that 7(a) Lenders may use
for variable rate loans made under the 7(a) program, and to amend SBA SOP 50 10 8 to reflect
these changes. Per 13 CFR § 120.214(c), SBA has the ability to “permit the use of alternative
base rate options that are widely adopted for small business commercial lending and will publish
notice of such alternative options in the Federal Register.” In accordance with that authority,
SBA is permitting the use of three alternative base rates for loans made with a variable interest
rate within the SBA 7(a) program: 5-year Treasury Note Rate, 10-year Treasury Note Rate, and
the Secured Overnight Funding Rate (SOFR) (collectively, “Alternative Base Rates”).
The 7(a) Alternative Base Rates are permanent additions to the program and are available for
immediate use by Lenders on the effective date of this Procedural Notice, March 1, 2026.
This Notice supersedes any guidance in the Working Capital Pilot (WCP) Program Guide
regarding the use of the Secured Overnight Funding Rate (SOFR) within the WCP Program,
modifying how the rate is calculated by removing the addition of 300 basis points to SOFR to
make it roughly equivalent to Prime.
SOP 50 10 8 Section B, Ch. 1, Para. B.4.a.v. (pages 124-125) is amended to read as follows:
v. For loans with a variable interest rate, the following terms must be defined in
E-Tran and the Note:
a) Base Rate or Alternative Base Rate
b) Spread
i) There are two acceptable Base Rates:
(a) The Prime Rate; or
(b) The SBA Optional Peg Rate.
ii) There are three acceptable Alternative Base Rate options:
(a) Secured Overnight Funding Rate (SOFR); or
(b) 5-year Treasury Note Rate; or
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(c) 10-year Treasury Note Rate.
iii) The Prime Rate will be that rate which is in effect on the first business
day of the month, as identified in a national financial newspaper or
website. This rate may be found in the newspaper on the second
business day of the month. If a website is used, please ensure whether
it is publishing the current day’s rate or the previous day’s rate as
some newspaper websites publish the previous day’s rate. The
Optional Peg Rate is a weighted average of rates the Federal
government pays for loans with maturities similar to the average 7(a)
loan. SBA calculates and publishes the Optional Peg Rate quarterly in
the Federal Register. Base rates will be rounded to two decimal places
with .004 being rounded down to .00 and .005 being rounded up to .01.
iv) The Secured Overnight Funding Rate (SOFR) will be the daily rate
which is in effect on the first business day of the month, as identified
by the Federal Reserve Bank of New York. SBA recognizes that
financial institutions use a range of SOFR products to deliver an
equivalent reference rate (e.g., 30-day term SOFR and 30-Day
Average SOFR). Lenders may continue to use their established in-
house SOFR reference rates of 30 days or less, as these rates closely
correlate with the daily SOFR rate.
v) The Treasury Rates included as Alternative Base Rates will be based
on the Federal Reserve Select Interest Rates publication for the final
business day of the prior month.
c) Frequency of change;
d) Range of fluctuation; and
e) Ceiling and floor (if any).
SOP 50 10 8 Section B, Ch. 1, Para. B.4.b. (page 125) is amended to read as follows:
b. Base Rate, Alternative Base Rate, Allowable Spread, and Frequency (13 CFR §
120.214):
i. A loan may have a variable interest rate. The base rate may be one of the
following:
a) The Prime Rate; or
b) The SBA Optional Peg rate.
ii. A loan with a variable interest rate may utilize an Alternative Base Rate. The
Alternative Base Rate may be one of the following:
a) Secured Overnight Funding Rate (SOFR); or
b) 5-year Treasury Note Rate; or
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c) 10-year Treasury Note Rate.
iii. The allowable spread when using the base rate (i.e., prime rate or SBA
Optional Peg) is determined by the loan amount.
a) Loans of $50,000 and less: Base Rate + 6.5%;
b) Loans of $50,001 up to and including $250,000: Base Rate + 6.0%;
c) Loans of $250,001 up to and including $350,000: Base Rate + 4.5%;
d) Loans of $350,001 and higher: Base Rate + 3.0%.
iv. When using an Alternative Base Rate, the maximum interest rate (Alternative
Base Rate plus spread) is determined by the loan amount with a cap based on
the Prime interest rate.
a) Loans of $50,000 and less: Prime + 6.5%;
b) Loans of $50,001 up to and including $250,000: Prime + 6.0%;
c) Loans of $250,001 up to and including $350,000: Prime + 4.5%;
d) Loans of $350,001 and higher: Prime + 3.0%.
v. The Lender must designate in its application for guaranty the amount of the
percentage spread to be added at each adjustment date. The same spread must
be used for all adjustments.
SOP 50 10 8 Section B, Ch. 1, Para. B.4.c. (pages 125-127) are amended to read as follows:
c. Policy on Variable Interest Rates
i. Standard Policy:
SBA’s maximum allowable interest rate applies both to the initial Note rate
on a variable rate loan and to the combined rate that is obtained by adding the
spread to either the base rate or Alternative Base Rate as outlined in Section
B, Ch. 1, Para. B.4.b. The spread applied to adjustments must be less than or
equal to the maximum allowed by SBA at the time of origination.
ii. Post-Approval Changes to the Interest Rate:
a) Pre-Disbursement Changes: After loan approval and prior to first
disbursement, the Lender may change the initial Note rate, including
changing the base rate, Alternative Base Rate, the spread over the base
rate or Alternative Base Rate, or change from a fixed rate to a variable
rate, or from a variable rate to a fixed rate, provided the new interest rate
does not exceed the maximum allowable interest rate at the time of the
loan application. The Lender must obtain the Borrower’s written
consent to the change in the interest rate (separate and apart from
executing the loan documents) and must either notify the LGPC of the
change or make the change through E-Tran Servicing.
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For example, an SBA-guaranteed loan was approved with a variable
rate. Since the loan was approved, the Prime rate changed. The
Borrower has asked the Lender if the loan can be switched to a fixed
rate. If the loan has not been disbursed and the fixed rate selected does
not exceed the maximum allowable fixed rate at the time of loan
application, the Lender may make this change per the Borrower’s
request.
b) Post-Disbursement Changes: After the loan is disbursed, on a variable
rate loan, the Lender may change the base rate, Alternative Base Rate,
or spread as long as the change is based on a method permitted when the
loan was approved and is consistent with the interest rate regulations at
the time the loan was approved. The Lender must obtain the Borrower’s
written agreement and must either notify the CLSC of the change or
make the change through E-Tran Servicing. For further guidance see
SOP 50 57.
iii. Frequency of Interest Rate Adjustment:
a) The first adjustment may occur on the first calendar day of the month
following initial disbursement, using the base rate or Alternative Base
Rate in effect on the first business day of the month. Lenders may delay
the initial adjustment period. For example, Lenders have used periods as
long as 5 years in order to provide the Borrower with an interest rate
that is set for the first 5 years of the loan. After that time, the interest
rate will begin to fluctuate as stated in E-Tran.
b) The Lender must specify in the Note the frequency at which the interest
rate adjustment will occur.
i) This adjustment period as identified in the Note may not be changed
without the written consent of the Borrower.
ii) Subsequent adjustments may occur no more frequently than monthly.
All subsequent adjustments will set the interest rate on the first
calendar day of the adjustment period using the base rate or
Alternative Base Rate in effect on the first business day of the
adjustment period.
iii) The rate of interest will change on the first calendar day of the
adjustment period even though the rate may not be known until the
second business day of that period.
For example, if the first of the month is a Sunday, the base rate is the
Prime rate in effect on Monday. This rate will be reported in the Wall
Street Journal on Tuesday, the third calendar day and second business
day of the month. Many lenders use the calendar quarter as the
adjustment period, especially those that sell the guaranteed portion in
the Secondary Market.
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c) After the interest rate begins fluctuating, the loan can be re-amortized.
Typically, loans are re-amortized every time the interest rate is adjusted
to ensure full amortization by the maturity date.
iv. Interest Rate Requirements for an SBA Note:
a) For fixed rate loans, the Lender must state the specific interest rate in
the Note.
b) For variable rate loans, the Lender must include the following
information in the Note:
i) Identification of the rate being used as the base rate or Alternative
Base Rate;
ii) The publication in which the designated base rate appears regularly
(e.g., Wall Street Journal from Prime or Treasury Rates, Federal
Reserve Bank of New York for SOFR, or the Federal Register if using
the SBA Optional Peg Rate). All allowed interest rates are also
published on the SBA’s website;
iii) The percentage spread, including any changes to percentage spread if
applicable, to be added to the base rate (e.g., in a construction loan);
iv) The initial interest rate of the loan (from disbursement to first
adjustment);
v) The date or timing of the first rate adjustment; and
vi) The frequency of rate adjustment.
SOP 50 10 8 Section B, Ch. 1, Para. B.4.e.ii.b) (pages 128-129) are amended to read as
follows:
ii. In order to use an interest rate swap in the 7(a) program, the interest rate
swap contract must meet the following conditions:
b) The interest rate swap contract does not affect the amount of money
owed by the Borrower to SBA in the event SBA purchases the guaranty.
In the event of a Borrower default, interest will be calculated using the
base rate or Alternative Base Rate and spread in the variable interest rate
Note, not the swap contract.
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The “Interest Rates” sections in SOP 50 10 8 will be amended and replaced as necessary to
reflect the updates in this Notice:
“See Section B, Ch. 1, Para. B.4.”
Section B, Ch. 2, Para. B.5, (7(a) Small & SBA Express), beginning on page 160
Section B, Ch. 3, Para. B.4, (7(a) CAPLines), beginning on page 197
Section B, Ch. 4, Para. A.3.d., (Export Express), beginning on page 237
Section B, Ch. 4, Para. B.4.d., (Export Working Capital Program), beginning on page 260
Section B, Ch. 4, Para. C.3.d., (International Trade), beginning on page 288
SOP 50 10 8 Section B, Ch. 5, Para. D.2.i.iii. (page 318) is amended to read as follows:
i. For loans being sold on the secondary market, in addition to the above:
iii. If Note interest rate fluctuates, full description of Base Rate, e.g., Prime Rate;
Alternative Base Rate, e.g. SOFR; publication source, e.g., WSJ; spread over
Base Rate as a percent; date of first fluctuation as either an exact date or a
description of date, e.g., first calendar quarter following first disbursement;
change period, e.g., calendar quarterly.
Lenders should note that loans utilizing an Alternative Base Rate will not be available for
secondary market sales at this time. However, SBA will evaluate the secondary market demand
for loans utilizing Alternative Base Rates.
Questions:
Lenders can submit questions on the sunset of the SBSS Score to 7aQuestions@sba.gov.
Thomas Kimsey
Associate Administrator
Office of Capital Access
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