Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged to the prime rate. Interest rates may be fixed or variable. The fixed rate loans must not exceed prime plus two and one-quarter percent (2.25%) if the maturity is less than seven years, and prime plus two and three-quarters percent (2.75%) if the maturity is seven years or more. For loans of less than $25,000.00, the maximum interest rate must not exceed prime plus four and one-quarter percent (4.25%) and four and three-quarters percent (4.75%), respectively; for loans between $25,000.00 and $50,000.00, maximum rates must not exceed three and one-quarter percent (3.25%) and three and three-quarters percent (3.75%), respectively. Variable rate loans may be pegged to either the lowest prime rate or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturity similar to the average SBA loan. It is calculated quarterly and published in the "Federal Register." The lender and the borrower negotiate the amount of the spread which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must be no more often than monthly, and must be consistent (e.g. monthly, quarterly, semi-annually, annually or any other defined consistent period).
