Best Practices: New SBA 7(a) Alternative Base Rate Options Effective March 1, 2026

On February 6, 2026, SBA issued Procedural Notice 5000-875051 7(a) Alternative Base Rate Options (the “Notice”), which announced new alternative base rate options for SBA 7(a) loans approved by SBA on or after March 1, 2026.

Prior to this Notice, SBA 7(a) variable interest rate loans had two base rate (“Base Rate”) options: the Prime Rate and the SBA Optional Peg Rate.  The Prime Rate is widely used in SBA 7(a) variable rate loans and is the prime rate in effect on the first business day of the month as identified in a national financial newspaper or website (typically found in the newspaper on the second business day of the month).  The SBA Optional Peg Rate is a weighted average of rates the federal government pays for loans with maturities similar to the average 7(a) loan, and SBA publishes this rate quarterly in the Federal Register.

While the two Base Rate options will remain, SBA 7(a) variable rate loans approved on or after March 1, 2026 will also have 3 alternative base rate options (collectively, the “Alternative Base Rate”) available as well:

1. The Secured Overnight Funding Rate (“SOFR”) is the daily rate in effect on the first business day of the month, as identified by the Federal Reserve Bank of New York. SBA permits Lenders to use their own established in-house SOFR reference rates of 30 days or less (e.g. 30-day term SOFR and 30-day average SOFR), as these rates closely correlate with the daily SOFR rate.
2. The 5-year Treasury Note Rate is based on the Federal Reserve Select Interest Rates publication for the final business day of the prior month.
3. The 10-year Treasury Note Rate is also based on the Federal Reserve Select Interest Rates publication for the final business day of the prior month.

When using an Alternative Base Rate, the maximum interest rate (Alternative Base Rate plus spread) depends on the loan amount, and will have a cap based on the Prime interest rate as set forth below:

• Loans of $50,000 and less: Prime Rate + 6.5%
• Loans of $50,0001 to $250,000: Prime Rate + 6%
• Loans of $250,001 to $350,000: Prime Rate + 4.5%
• Loans of $350,001 and higher: Prime Rate + 3%

The Notice revises language in SOP 50 10 8 to incorporate the use of Alternative Base Rates.  The Notice also replaces guidance set forth in the Working Capital Pilot (“WCP”) Program guide regarding the use of SOFR and how it is calculated within the WCP program.

These additional Alternative Base Rate options provide more flexibility for SBA Lenders and 7(a) borrowers, particularly during long-term SBA loan servicing when fluctuating markets may make Treasury-based or SOFR rates more attractive than Prime. However, Alternative Base Rates should not be used in loans that will be sold in the secondary market. Although the secondary market will not currently accept the use of Alternative Base Rates, the Notice states that SBA will evaluate the secondary market demand for loans utilizing Alternative Base Rates, so stay tuned for possible updates.

For more information regarding SBA compliance and the new Alternative Base Rate options, please contact us at info@starfieldsmith.com or (215) 542-7070.