The fixed number of percentage points a lender adds to an index, such as prime or SOFR, to set a loan's interest rate.
On a variable rate loan the rate is the index plus the spread. The index moves with the market; the spread is the lender’s price for the credit and normally stays the same for the life of the loan. A quote of prime plus 1.5 means that if prime stood at 8 percent the loan would charge 9.5 percent.
Because lenders use different indexes, compare the all-in rate today and ask how each index has moved. A smaller spread over a higher index can cost more than a larger spread over a lower one.
SBA caps the spread on variable rate 7(a) loans by loan size: 6.5 percentage points over the base rate for loans of $50,000 or less, 6.0 for loans above $50,000 through $250,000, 4.5 above $250,000 through $350,000, and 3.0 above $350,000. SBA’s loan manual adds that the lender must name the spread up front and use the same one at every adjustment. Lenders may charge less than the cap.
How it shows up in the data here
Not a field in any file used here. HMDA rows carry a reported interest rate, and loan comps prints the median reported rate by lender for multifamily and 1-4 unit investor loans made, but no public record splits a rate into index and spread. Credit unions report one average rate on real-estate-secured commercial loans. For a 7(a) quote, test a spread in the SBA 7(a) payment calculator.
Go further
- Multifamily loan comps: Multifamily loans made, with median reported rate and term by lender.
- SBA 7(a) payment calculator: Monthly payment on a 7(a) loan from terms you enter.
- SBA 7(a) payment calculator: Monthly payment with the FY2027 upfront guaranty fee, with the fee paid in cash or added to the loan.
- SBA 7(a) or 504: which fits your loan: Both are SBA loans, and they work differently. The choice usually turns on what you are buying and how much cash you can put in.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- SOFR (Secured Overnight Financing Rate): A daily benchmark interest rate, published by the Federal Reserve Bank of New York, that measures the cost of borrowing cash overnight against Treasury securities.
- Prime rate: A base rate banks post for pricing short-term business loans. The Federal Reserve reports it as the rate posted by a majority of the 25 largest U.S. commercial banks.
- Rate floor: The minimum interest rate a variable rate loan can charge. When the index plus the spread falls below the floor, the borrower pays the floor.
- Adjustable rate loan: A loan whose interest rate resets on a schedule to an index, such as prime or SOFR, plus a fixed spread, so the payment can rise or fall over the term.
- Fixed rate loan: A loan whose interest rate is set at closing and does not change for a stated period, often the whole term, so the principal and interest payment stays the same.
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
Sources
- 13 CFR 120.214, conditions for variable interest rates (paragraph (d), maximum allowable variable interest rates), retrieved .
- SBA SOP 50 10 8.1, Appendix 18, 7(a) Interest Rate Requirements (Base Rate, Alternative Base Rate, Allowable Spread, and Frequency), effective .
- Fannie Mae Multifamily Guide, Part III, Chapter 11, Section 1101, Structured ARM Loan description (Interest Rate), retrieved .
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.