- On June 19, 2018
Last week the Fed raised interest rates 25 basis points for the second time in 2018. This pushes the Wall Street Journal prime rate from 4.75% to 5%.
This means that for 6 of the last 7 quarters the Fed has increased rates.
- Q4 2016 = 25 bps
- Q1 2017 = 25 bps
- Q2 2017 = 25 bps
- Q3 2017 = no change
- Q4 2017 = 25 bps
- Q1 2018 = 25 bps
- Q2 2018 = 25 bps
Higher rate trajectory is increasing:
- 1980 rate 21.5%
- 1997 rate 8.5%
- 2007 rate 7.25%
- 2012 rate 3.25%
- 2015 rate 3.50%
- 2016 rate 3.75%
- 2017 4.5%
- 2018 Q2 rate 5%
- 2018 YE projects at 5.5%
Rates based on year end for stated year.
SBA lenders will typically charge from 2% to 2.75% above the WSP as the variable interest rate. Rates can vary based on a host of factors. With credit quality being equal, the smaller size loans typically see a spread closer to 2.75% and larger loans typically see the spread closer to 2%.
The SBA lenders focused on Financial Advisor lending, use the Wall Street Journal Prime Rate. The WSJ prime rate typically tracks at about 3% above the fed rate.
The SBA sets a maximum allowable interest rate spread at 2.75% above prime rate for their 7(a) program which most all SBA loans advisors have been under.
With this latest rate increase, most SBA loans advisors have will now be from 7% to 7.75%.
The Fed expressed the likelihood of two more rate increases this year. If this materializes then the SBA rates advisors are paying will have jumped 1% in 2018 alone.
By the end of the year with a prime rate of 5.5%, the SBA rates will be ranging from 7.5% to 8.25%.
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