SBA Expands Interest Rate Options for 7(a) Loans: What Business Owners Should Know

Effective March 1, 2026, the SBA is expanding the variable interest rate options available within the 7(a) program.

For business owners exploring SBA loans, this update provides additional flexibility in how an SBA 7(a) loan may be structured. Understanding these new options can help you make informed decisions about long-term financing strategy.

What Is Changing in SBA Lending?

Historically, most variable rate SBA loans were tied to:

• The Prime Rate
• The SBA Optional Peg Rate

Beginning March 1, 2026, lenders may also use three new Alternative Base Rates for variable rate loans:

• Secured Overnight Funding Rate (SOFR)
• 5-year Treasury Note Rate
• 10-year Treasury Note Rate

These additions are permanent enhancements to the 7(a) program.

How Alternative Base Rates Work

For variable rate SBA 7(a) loans, the interest rate is composed of:

Base Rate + Spread

The spread is determined by loan size and cannot exceed SBA maximum allowable limits.

When using an Alternative Base Rate, the maximum interest rate is still capped based on the Prime Rate. This ensures borrower protections remain consistent across structures.

Loan size determines the maximum allowable spread:

• Loans $50,000 and under
• $50,001 to $250,000
• $250,001 to $350,000
• $350,001 and above

Each tier has its own maximum margin permitted under SBA guidelines.

Why This Matters for Small Business Loans

Interest structure directly affects:

• Monthly payment amounts
• Cash flow planning
• Long-term borrowing cost
• Risk exposure in changing rate environments

For borrowers seeking small business loans, particularly for acquisitions or expansion, having multiple base rate options may allow for more strategic structuring.

For example:

• Treasury-based rates may align better with longer-term planning horizons
• SOFR may provide an alternative reference rate depending on market conditions
• Prime may remain preferable for simplicity and familiarity

There is no one-size-fits-all approach in SBA lending. The best small business loans are structured in alignment with your business goals and risk tolerance.

Important Secondary Market Consideration

At this time, loans utilizing an Alternative Base Rate are not available for secondary market sale.

SBA has indicated it will evaluate secondary market demand for these structures in the future. This is primarily relevant for lenders but may influence how certain loans are structured.

Fixed vs Variable: A Strategic Conversation

This update also reinforces the importance of understanding whether a fixed or variable rate structure makes sense for your business.

Variable rate loans:

• May adjust monthly or quarterly
• May be re-amortized after rate changes
• Require clear disclosure of adjustment frequency and base rate source

For some businesses, a variable structure supports flexibility. For others, rate certainty may be preferable.

An experienced SBA lending advisor can walk through how each structure impacts repayment over time.

What This Means for Business Owners in 2026 and Beyond

This expansion of base rate options reflects continued evolution within SBA lending. More flexibility means more opportunity for strategic alignment between loan structure and business growth.

At Alliance Capital, we believe business growth changes communities for the better. Our approach to SBA loans is solutions-driven and relationship-focused. We help business owners evaluate not only whether they qualify for an SBA 7(a) loan but how to structure it in a way that supports long-term success.

If you are considering small business loans for startups, acquisitions or expansion, now is an excellent time to explore how these new interest rate options may impact on your financing strategy.

Alliance is ready to come alongside you in your business journey and help you determine which SBA loan structure best aligns with your goals.