What is the WSJ Prime Rate?
The Wall Street Journal Prime Rate, or the prime rate, is a benchmark interest rate commonly used by banks to set the interest rates for various consumer and commercial loans. The prime rate directly correlates with the federal fund rate set by the Federal Open Market Committee (FOMC), a branch of the Federal Reserve System. They set the target range for the federal funds rate during its regular meetings. The formula for the prime rate is the federal funds rate + 3%.
Let’s get some perspective…
Current: 8.5%
All time high: Dec 19, 1989: 21.5%
All time low: Dec 16, 2008, and March 16, 2020: 3.25% (market crash in both years)
Since 2000, the prime rate has stayed historically low. From 1970 to 1990, the prime rate varied between 10% and 21.5%, marking the era with the highest interest rates ever recorded. Although interest rates have fluctuated since, they have generally remained low.
How does the Prime Rate Impact your Loan?
The prime rate directly influences the interest rate applied to your loan. Commercial banks typically only offer the prime rate to their most creditworthy customers, such as large corporations or financial institutions who have many financial resources. Most lenders will offer interest rates at the prime rate + a surcharge for individual customers who do not have the same resources as large corporations. However, the SBA has a maximum limit on interest rates for SBA loans.
The maximum interest rates for variable 7(a) loans are as follows:
Loan amount | Max rate |
|---|---|
$50,000 or less | Base rate plus 6.5% |
$50,001 to $250,000 | Base rate plus 6.0% |
$250,001 to $350,000 | Base rate plus 4.5% |
Greater than $350,000 | Base rate plus 3.0% |
Interest rates for 7(a) loans are negotiated between the borrower and the lender, but are subject to SBA maximums listed above. You can read more about the terms, conditions, and eligibility of SBA 7(a) loans here.
If you are considering a small business loan, the interest rate for an SBA 7(a) loan through NEWITY is the WSJ Prime Rate + 2.75%. While variable interest rates may appear daunting initially, examining them in light of historical data reveals that interest rates have actually been consistently low since 2000.
If you are seeking small business funding, we are in a position where interest rates are moderate. SBA 7(a) loans could be the ideal choice for you, offering some of the most competitive interest rates among various financing options. Discover more about how loan rates compare across various financing options here. With NEWITY you can see how much you qualify to receive in less than 10 minutes. Create an account and fill out an application today, it will not impact your credit score.
