SBA 7(a), SBA 504 and USDA B&I Underwriting in 2026: The Rate Stack, DSCR Margin, Interest-Rate Risk and Stress Testing

Rules current as of November 2026. Regulations are quoted from the 2026 Code of Federal Regulations (revised as of January 1, 2026) and checked against every Federal Register document amending them since then. Rates are the latest official postings as of November 6, 2026.

How coverage is defined and tested against SBA's thresholds is covered in the DSCR methodology reference. Average 7(a) pricing by quarter is tracked in the SBA cost of capital index. This page adds the regulation-level rate stack for all three programs, SBA's loss evidence by price and rate type, exact rate-shock and construction arithmetic, a stress matrix with reserves, and the conditions that make a marginal approval defensible. Worked-example inputs are illustrative; every rule, rate and date is cited to a primary source.

1. The 2026 rate stack: what each program allows, and who sets it

Three pricing regimes sit under one label. In 7(a), the lender sets the rate under a federal ceiling. In 504, the financing splits into a fixed-rate debenture set by SBA and a bank loan priced by the bank. In B&I, the lender and borrower negotiate the rate. Items below are labeled rule (regulation or Federal Register notice), guidance (agency web page) or market data (an observed rate), with dates.

The prime rate, 2022 to November 2026 (market data)

Prime is the rate posted by a majority of the top 25 insured U.S.-chartered commercial banks [8]. The dates below are the weeks (ending Wednesday) in which the Federal Reserve's weekly H.15 average first sat at each new level [9].

Source: Federal Reserve H.15 weekly averages of the bank prime loan rate [9].

The weekly prime rate averaged 4.83% in 2022, 8.19% in 2023, 8.33% in 2024, 7.37% in 2025 and 6.79% in 2026 through November 4 [9]. The cycle did not end with the cuts of 2024 and 2025. On September 16, 2026 the Federal Open Market Committee raised the federal funds target range to 3-3/4 to 4 percent, saying inflation "remains elevated" [10]. On October 28 it held, with two members preferring another increase [11]. A variable-rate borrower who closed at a 6.75% prime has already absorbed 25 basis points of an increase the committee has not ruled out repeating.

SBA 7(a) maximum interest rates (rule)

The 7(a) regulation separates fixed and variable rates.

Fixed rates. 13 CFR 120.213(a) allows "a reasonable fixed interest rate" and leaves the maximum to Federal Register notice [2]. The governing notice, effective August 1, 2022, sets it at the prime rate on the first business day of the month plus 800 basis points for loans of $25,000 or less, 700 up to $50,000, 600 up to $250,000, and 500 above $250,000. It replaced the small-loan add-ons of the former 13 CFR 120.215, removed in 2022 [3].

Variable rates. Under 13 CFR 120.214 [1], the first change may come on the first day of the month after initial disbursement, and later changes no more than monthly. The rate moves one-for-one with the base rate, and any ceiling may sit no further from the initial rate than the floor. The base is prime on the first business day of the month, SBA's Optional Peg Rate, or an alternative SBA has announced. The maximum spread is set by loan size as of the date SBA receives the application. Amortization may be recomputed as rates move, and balloons are not allowed.

Sources: 13 CFR 120.214(d) [1]; 87 FR 46883 [3]; SBA's November 2026 fixed-rate posting, prime 7.00% [4].

Two features drive underwriting. First, the ceiling is set at application, not for the life of the loan: a loan priced at today's 10.00% maximum carries 11.00% if prime rises a point, and SBA warns borrowers the payment may change with the rate [12]. Second, smaller loans may carry wider spreads (and, at $150,000 or less, an 85% rather than 75% guarantee [17]), so any comparison of outcomes by rate is partly a comparison by size (section 2). SBA's posted fixed maximum for loans over $250,000 traces the cycle: 8.50% in April 2022, 13.50% from August 2023, 12.00% from November 2025, 11.75% from January 2026 and 12.00% again from October 2026 [4].

Base rates other than prime (rule and market data)

Since March 1, 2026, a 7(a) lender may also use the 5-year or 10-year Treasury note rate, reset monthly, or SOFR. Whatever the index, the maximum "shall not exceed Prime plus the allowed spread for that loan amount" [6].

The alternative indexes change what moves the payment, not the ceiling. A Treasury-based loan moves with the yield curve, not with policy decisions: the 10-year base was 5.29% for October 2026 and 4.94% for November [7].

SBA 504: debenture pricing and the bank's maximum rate (rule and guidance)

The rate on the 504 loan and its debenture "is set by the SBA and approved by the Secretary of the Treasury" [28], pegged to an increment above the 10-year Treasury, with 10-, 20- and 25-year maturities [13]; the program lends $25,000 to $5.5 million at a fixed rate [14]. The 10-year Treasury yield was 4.84% on November 5, 2026 [8]. SBA's 2026 sale calendar is Information Notice 5000-869666 [58]; the rates set at the October and November 2026 sales could not be read on a primary source and are listed for verification.

The bank's first-lien loan must carry a reasonable rate under a maximum SBA publishes [26]. The October 1, 2026 notice sets it at 6% over the New York prime rate, or the state usury limit if lower [5]: 13.00% today. The bank loan may be fixed or variable, must run at least 7 years beside a 10-year 504 loan and 10 years beside a 20-year one, and may not be callable unless in default [26].

USDA B&I: negotiated rates and the FY2026 guarantee terms (rule)

USDA sets no B&I rate ceiling. Rates, caps and adjustment limits are negotiated, fixed, variable or mixed, but no higher than the lender charges on similar unguaranteed loans [30]. A variable rate must follow a published base, adjust no more than quarterly and re-amortize to maturity; a swap leaves the guarantee covering principal and interest only [30]. Terms run to useful life, capped at 40 years, with no balloon; after any interest-only period, the first full payment must start within three years [31]. Guarantee percentage and fees are set by annual notice [32][33][34]. The FY2026 notice, published March 9, 2026, is effective from October 1, 2025 [35]:

Source: USDA OneRD annual notice for FY2026, 91 FR 11272 [35]. The rates apply to loans obligated in FY2026 "unless precluded by a subsequent FY 2026 appropriation" [35].

The guarantee fee is loan amount times guaranteed percentage times fee rate [33]: $102,000 on a $4,000,000 loan at 85%. The retention fee applies the same way to the December 31 balance [35], about $18,700 in year one, at a rate fixed for the life of the guarantee [34].

The rate stack in one table

SBA's FY2027 guaranty and annual fees are published by Information Notice [14][57] and could not be read; the regulatory ceilings are 2%, 3% or 3.5% of the guaranteed portion by loan size, plus 0.25% above $1,000,000, and an annual service fee of up to 0.55% that the lender may not pass on [18]. The annual 504 fee is capped at 0.9375% [29].

2. What SBA's loan file says about price, rate type and timing

Rules say what a lender may charge, not what happens to the borrowers who pay it. SBA publishes loan-level data for every 7(a) and 504 loan, updated quarterly; the tables below use the files as of September 30, 2026 [47]. Read them as associations, not causes. Three confounders run through every table:

• Loan size. SBA allows wider maximum spreads on smaller loans (section 1), so the higher rate bands contain more small loans, and small loans charge off more often whatever their rate (Table 5).
• Approval timing. FY2022 ran from October 2021 to September 2022, a year in which prime rose from 3.25% to 6.25% [9]. Loans approved late in that year started at higher rates and then met the 8.50% peak within a year or so of funding. Part of what the rate band measures is "approved just before a rate shock."
• Seasoning. The FY2020 to FY2022 cohort is four to six years old. Its charge-off shares will keep rising as the loans season.

Table 1. SBA 7(a) loans by initial interest rate, FY2020 to FY2022 approvals (4 to 6 years of seasoning)

Recent cohorts are still running: these shares will rise as the loans season. Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026; analysis of the public SBA file. Disbursed loans exclude cancelled, not-funded and undisbursed (COMMIT) loans. Charge-off dollars are SBA's gross charge-off amount.

Table 2. SBA 7(a) loans by initial interest rate, FY2010 to FY2016 approvals (10 to 16 years of seasoning)

Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026; analysis of the public SBA file. Disbursed loans exclude cancelled, not-funded and undisbursed (COMMIT) loans. Charge-off dollars are SBA's gross charge-off amount.

The pattern holds in both cohorts. In FY2010 to FY2016, loans that started under 6% charged off 4.3% of the time and loans at 10% to under 12% charged off 13.2%. In FY2020 to FY2022 the gap is wider: 1.6% against 16.8%, with dollar losses of 0.49% and 15.51% of approved dollars. Time to charge-off also shortens as the rate rises, from 68 to 45 months in the older cohort. That is what a payment crowding out cash flow would produce, and also what pricing weaker credits higher would produce. The data cannot separate the two. Either way, a loan priced near the ceiling carries more risk than its closing coverage suggests.

Table 3. SBA 7(a) fixed versus variable rate loans

Source: SBA 7(a) FOIA loan data, as of 30 Sep 2026 (FixedOrVariableInterestInd); analysis of the public SBA file.

Variable-rate loans, about 4 in 5 of the file, charged off more often in both cohorts: 7.6% against 4.8%, and 4.4% against 2.5%. Part of that gap is who borrows variable rather than the rate type. But the recent cohort lived through the 2022 to 2023 increases with payments able to reset monthly [1], and its variable-rate loans lost 1.14% of approved dollars against 0.46% for fixed.

Table 4. SBA 7(a) loans by collateral indicator, FY2010 to FY2016 approvals

Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026; analysis of the public SBA file. Disbursed loans exclude cancelled, not-funded and undisbursed (COMMIT) loans. Charge-off dollars are SBA's gross charge-off amount.

Table 5. SBA 7(a) loans by loan size, FY2010 to FY2016 approvals

Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026; analysis of the public SBA file. Disbursed loans exclude cancelled, not-funded and undisbursed (COMMIT) loans. Charge-off dollars are SBA's gross charge-off amount.

Table 6. SBA 7(a) loans by business stage at approval, FY2010 to FY2016 approvals

Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026; analysis of the public SBA file. Disbursed loans exclude cancelled, not-funded and undisbursed (COMMIT) loans. Charge-off dollars are SBA's gross charge-off amount.

Tables 4 to 6 show associations underwriters already price: no recorded collateral, small size and start-up status all go with more charge-offs. Table 5 is also why Table 1 is not a pure price effect: the smallest loans, which may carry the widest spreads, charged off at 7.8% against 4.1% for loans over $2 million, and sooner (54 months against 91).

Table 7. SBA 7(a) and 504 outcomes by property type, FY2010 to FY2016 approvals

Source: SBA 7(a) and 504 FOIA loan data, as of 30 Sep 2026, by borrower NAICS (hotel 721110; gas station 457110/457120/447110/447190; car wash 811192; senior care 623110/623311/623312; self-storage 531130; RV park 721211; restaurants 722511/722513; child care 624410; fitness 713940; brewery and winery 312120/312130; physician and dental 621111/621210); analysis of the public SBA file. 504 business stage is not recorded for these years.

Table 7 carries the timing point. Across FY2010 to FY2016 approvals, 7(a) charge-offs arrived on average 61 months after approval and 504 charge-offs 73 months after; for car washes and senior care the 504 average passes seven and a half years. A loss five or six years out is not something a closing-day coverage test measured. It comes from a rate reset, a stalled ramp-up, a refinancing that did not come, or a reserve never funded. Hence the rest of this article is about stress and structure.

For the wider loss analysis by industry, lender and vintage, see the SBA Feasibility Risk Meter and SBA 7(a) charge-off rates by industry.

What the loan file implies for underwriting

3. Minimum DSCR is a floor, not a target

SBA requires loans "so sound as to reasonably assure repayment," analyzed as the lender would analyze a similar loan without a guarantee [19]. USDA asks whether the project will produce enough revenue to service its debt "over the life of the guaranteed loan" [37]. Both standards look across the whole term; closing coverage is evidence, not the judgment. SBA's origination procedures, including how coverage is tested, are in SOP 50 10 [15]; the thresholds are explained in the DSCR methodology reference. The one coverage number in the regulations reviewed here is USDA's. When debt refinancing is the majority purpose of a B&I loan to an existing business, the borrower must show historical coverage of at least 1.1 times on the proposed debt service, or show that it has recovered from what depressed past results, with coverage of at least 1:1 on the current income statement [42]. Bank supervisors expect each lender's own policy to set minimum coverage, net worth, guarantor cash flow and loan-to-value standards by loan or property type [48].

Break-even coverage and the margin of safety

Coverage of 1.00x is break-even: cash available for debt service exactly equals the payments. Everything above it is margin. The useful question is how far cash flow can fall before the borrower reaches break-even, or reaches the lender's policy floor. For a starting coverage ratio D, cash flow can fall by 1 - 1/D before coverage hits 1.00x, and by 1 - F/D before it hits a floor F.

Computed in Python. The 1.20x floor is illustrative, not an SBA or USDA threshold.

A project at 1.25x against a 1.20x floor has a 4% cushion before breach, while it can lose a fifth of its cash flow before it stops paying. Sponsors quote the second number; covenants trip on the first.

Why the minimum is the wrong target

• Numerator. Owner pay, management fees, replacement reserves and one-off items move cash flow more than a rate change moves debt service. Unadjusted coverage is not coverage.
• Timing. Stabilized year-3 coverage says nothing about months 1 to 24. Section 5 shows a project at 1.35x stabilized running below 1.00x in its first year of payments.
• Fixed costs. Cash flow falls faster than revenue. In section 6, a 1% revenue decline removes 1.8% of cash available for debt service, so a 10% miss takes 1.25x to 1.03x.

4. Interest-rate sensitivity: exact numbers for a variable 7(a) loan and a 504 structure

The rate rules and prime rate are real; the loans and cash flows are illustrative. Payments are level monthly principal and interest, annualized, computed in Python.

Example A: a variable-rate 7(a) loan

Inputs (illustrative): $2,000,000 loan, 25-year amortization (real estate), variable at prime plus 2.75 = 9.75% at today's 7.00% prime. That is 25 basis points inside the 10.00% maximum for a loan over $350,000 [1]. Cash available for debt service is $267,000, which gives coverage of 1.25x at closing. The lender policy floor is 1.20x (illustrative).

Computed in Python. Inputs illustrative.

• Break-even rate (DSCR 1.00x): 12.80%, or 305 basis points above the closing rate. That corresponds to a prime rate of 10.05%.
• Rate at the 1.20x floor: 10.26%, only 51 basis points above the closing rate, or a prime rate of 7.51%.

A return to the 8.50% prime of August 2023 to September 2024 [9] would put this loan at 1.11x. A 300 basis point move, less than the 425 basis points prime rose during 2022 [9], would put it at break-even. If the rate instead holds for three years, the balance falls to $1,934,537 and a reset over the remaining 22 years [1] gives:

Computed in Python. Inputs illustrative.

Three years of amortization buy little protection on a 25-year schedule. Over 10 years the same loan would cost $313,849 a year: less rate exposure as it amortizes, but far less coverage at the start.

Example B: a 504 structure with a variable bank piece

Inputs (illustrative): a $4,000,000 project for an existing business in a general-purpose building. Financing follows the regulation's typical split [60][24][25][27]: 10% borrower contribution ($400,000), a 50% bank first lien ($2,000,000), and a 40% CDC loan funded by a debenture ($1,600,000). The bank loan floats at prime plus 0.25 = 7.25% on a 25-year amortization. The 504 loan is fixed at an assumed all-in 6.50% over 25 years; that figure is illustrative, not the current debenture rate. Cash available for debt service is $379,000, which gives 1.25x at closing.

Computed in Python. Inputs illustrative.

• Floating share of debt service: 57.2%. The rest is fixed for the life of the debenture.
• Break-even bank rate (DSCR 1.00x): 11.81%, which is 456 basis points above closing.
• Bank rate at the 1.20x floor: 8.06%, which is 81 basis points above closing.

The 504 structure does not remove rate risk; it shrinks the floating share of debt service to 57%. From the same 1.25x, the 504 borrower absorbs 81 basis points before the floor against 51 for the 7(a) borrower, and 456 before break-even against 305. Financed instead with a 90% variable 7(a) loan at 9.75%, this project would carry $384,971 of debt service and open at 0.98x. That is one illustrative project, not a program comparison; for the rules side by side see the 7(a) versus 504 comparison.

For modeling rate assumptions in a feasibility study, see how interest rates move the feasibility numbers; the DSCR calculator reproduces single scenarios.

5. Construction-cost and schedule risk

Construction adds three risks stabilized coverage does not see: overruns, delay, and a ramp-up that carries the full payment on partial revenue. All three land on equity first.

What the rules already require

The OCC adds benchmarks: contingency "usually range[s] between 5 and 10 percent of the overall budget," fixed-price contracts mitigate overruns, and unsecured loans to cover overruns are generally imprudent because overruns "may be indicative of an undercapitalized project" [48].

Worked example: overrun, interest during construction and delay

Inputs (illustrative): land $600,000; hard costs $3,000,000; soft costs $400,000; contingency at 5% of hard costs ($150,000), for a budget of $4,150,000 before interest. A 12-month build. The construction loan funds 90% of total cost, the borrower's equity goes in first, the rate is 9.75%, and hard and soft costs are drawn evenly over the build. Interest during construction is computed monthly on the drawn balance and not compounded.

Computed in Python. Inputs illustrative.

A 10% hard-cost overrun raises the borrower's cash requirement by 34%; a 20% overrun doubles it. A six-month delay adds $182,081 of interest, or $261,590 with a 200 basis point higher construction rate. The failure point is the borrower who had exactly 10% and nothing behind it.

Doubling the contingency to 10% of hard costs ($300,000, still within the 504 program's 10% cap [23]) would have absorbed the whole 10% overrun. On a 90% loan it costs the borrower about $15,000 more at closing. In a 504 project, unused contingency above 2% of the anticipated debenture comes off the debenture at completion [27]. That is cheap insurance.

Worked example: the first year of principal and interest

Inputs (illustrative): the $3,919,970 loan above amortizes over 25 years at 9.75%, for $419,188 a year of debt service. Stabilized cash available for debt service is $566,000, or 1.35x. The ramp-up runs at 80% of stabilized cash flow in the first operating year and 95% in the second.

Computed in Python. Inputs illustrative.

At 1.35x stabilized, the project does not cover its first year of payments even on schedule, and a slipped opening with an unchanged payment date takes it to 0.41x. The file should name its answer: an interest-only period through stabilization (USDA allows up to three years before the first full payment [31]), a funded debt service reserve, or a payment start tied to occupancy.

Interest reserves: useful, and easy to misuse

The OCC says an interest reserve should cover interest "through the project's anticipated completion and lease-up, sale, or occupancy," warns that badly administered reserves "can mask a poorly performing project," and calls refilling a depleted reserve with new debt "a red flag" [48]. The 2023 interagency workout statement [51] explains the mechanism: a stalled project stays contractually current on reserve-funded interest while principal is in jeopardy [50]. Size the reserve to the delay case, and stop draws once the project's cash flow covers interest [48].

Cost data

No official construction price index could be opened (the Bureau of Labor Statistics refused automated access). Census reports September 2026 construction spending at a $2,186.1 billion annual rate, 2.7% below a year earlier, with private nonresidential at $790.6 billion, up 1.1% on the month [52]. Spending is value put in place, not price, so cost assumptions should come from bids and an independent cost review. See also the SBA construction feasibility guide.

6. Stress testing a credit committee will accept

No program prescribes a stress test; the expectation comes from bank supervision. The OCC treats "some form of stress testing or sensitivity analysis" at least annually as part of sound risk management for community banks, including at the individual loan level [49], and expects policy to test feasibility for sensitivity to interest rates, vacancy and operating expenses [48]. In a workout, the agencies expect "realistic projections of a borrower's available cash flow" [50]. A stress test at approval is the first draft of that analysis.

What makes a stress test credible

1. Shocks tied to evidence. A 300 basis point shock is roughly the prime increase of the second half of 2022 [9]; revenue shocks should come from the borrower's worst year or the study's downside.
2. Single and combined scenarios. Singles show which variable matters; combinations show whether an ordinary bad year is survivable.
3. A reverse stress that solves for the revenue, cost or rate that reaches 1.00x and the floor.
4. A pass rule written before the results: pass, marginal (1.00x to the floor) and fail.
5. A mitigant for every failure. A failed scenario is a list of conditions, not a decline (section 9).

Worked example: the stress matrix

Inputs (illustrative): the 504 borrower from Example B. Revenue $1,516,000; variable costs 55% of revenue; fixed operating costs $303,200; cash available for debt service $379,000 (25% of revenue); debt service $303,113; coverage 1.25x. Pass is at or above a 1.20x floor, marginal is 1.00x to 1.20x, and fail is below 1.00x. Rate shocks apply to the variable bank piece only.

Computed in Python. Inputs illustrative.

Reverse stress. Coverage reaches 1.00x at revenue of $1,347,363, which is 11.1% below the base case. It reaches the 1.20x floor at $1,482,080, only 2.2% below the base case. On the rate side, the bank rate would have to rise 456 basis points to reach break-even and 81 basis points to reach the floor (section 4). Revenue is the binding risk for this borrower; rate is the second.

This is what "barely meets the minimum" looks like: a pass on the base case and on no adverse case. A committee shown the first row approves; a committee shown the matrix attaches conditions.

The same project with two conditions attached

Changes (illustrative): the borrower contributes 20% instead of 10%, which brings the bank piece down to 40% ($1,600,000, still equal to the 504 loan as 13 CFR 120.920 requires [25]), and the bank loan is fixed at 7.50% for five years. Debt service falls to $271,526 and base coverage rises to 1.40x.

Computed in Python. Inputs illustrative.

The conditions turn three fails into marginal results and remove rate risk for five years. They do not fix the ramp-delay or severe cases. Reserves do.

Reserves: what turns a marginal result into an acceptable one

A reserve does not change coverage; it changes how long a borrower can run below 1.00x without missing a payment. USDA asks lenders to ensure "adequate working capital, operating capital and reserves for capital expenditures, debt service, and maintenance as applicable" [37]. The debt service reserve pays principal and interest in a shortfall; the replacement (FF&E) reserve funds the capital spending that keeps revenue from decaying; the working capital reserve carries fixed costs through ramp-up and troughs.

Computed in Python. Inputs illustrative. Shortfalls are measured to 1.00x; covering the gap to a 1.20x floor would need more: $106,586 a year in the combined case and $176,016 in the severe case.

With 20% equity and a fixed bank rate, the severe-case shortfall falls to $25,176 a year, which a six-month reserve of $135,763 covers for about 5.4 years. Equity, fixed rate and reserve together make this project defensible; none does alone. For debt capacity by asset class, see what SBA debt can support by asset class.

7. USDA B&I underwriting under 7 CFR Part 5001

B&I runs under 7 CFR Part 5001, revised by a final rule effective November 29, 2024 [44], confirmed in December 2025 [46] and corrected effective December 11, 2025 [45]. USDA Rural Development's website refused automated requests, so this section relies on the regulation and the Federal Register.

What the lender must analyze: the five Cs

The lender's written credit evaluation must cover each of the "Five Cs" and must be approved inside the lender before the application is submitted [37]:

The evaluation also needs ratio spreads against industry standards, support for projections that depart from history, quarterly cash flow for seasonal borrowers and early-guarantee construction projects, and global coverage for affiliates and guarantors [37].

Repayment ability, equity and guarantees

Capital is balance sheet equity at closing, in cash or earning assets, excluding appraisal surplus and bargain purchase gains; subordinated debt counts only for cash that stays in for the loan's life [36]:

Source: 7 CFR 5001.105(d) and Table 1 to that paragraph [36].

The agency may raise the requirement for higher risk, citing among other things the strength of the feasibility study, or lower it for an existing business with guarantees and pro formas at or above the industry median for current ratio, quick ratio, debt to worth and coverage [36]. Owners of 20% or more guarantee for the full term [39]. Construction collateral needs both "as is" and prospective values, with going-concern value deducted before discounting [38].

The feasibility study rule

For guaranteed loans over $600,000, 7 CFR 5001.306(a)(3) lets the agency require a feasibility study whenever the lender's analysis is not enough to establish technical feasibility, market feasibility or economic viability. For guaranteed loans over $1,000,000 to a new business, a study "prepared by an independent qualified consultant acceptable to the Agency is required," with a scope the agency sets [41]. At $1,000,000 or less the agency may require one, including where the project "will significantly affect the operations" of an existing borrower and its historic cash flow [41]. The lender must also submit a written evaluation of the study itself [37]. On what such a study costs and contains, see SBA feasibility study cost.

What the agency reviews, and what it will not change later

Because a B&I lender cannot reprice a weakening credit upward [43], the closing-day rate structure is the one the borrower lives with, and the rate stress matters accordingly.

8. SBA 504 specifics: structure, contribution and where the rate risk sits

The 504 program finances fixed assets through three layers. 13 CFR 120.801 describes them [60], and 120.900 gives the typical split of 10% borrower, 50% third-party loan and 40% 504 loan [60]:

The debenture is fully guaranteed by SBA and sold to investors in pools [60]. Fees include a CDC processing fee of up to 1.5%, CDC servicing of 0.625% to 2% a year, SBA's 0.5% guarantee fee, an annual fee of up to 0.9375% and a funding fee of up to 0.25% [29]; SBA puts the total at "approximately 3% of the debt," which may be financed [13].

Rate risk sits in three places:

1. The bank piece. It is the only layer that floats, and at 50% of project cost it carries more than half the debt service in Example B. The bank's maximum is written as a spread over prime [5], so it rises with prime and does nothing to limit what a rising prime does to a variable note.
2. The interim period. Before the debenture is sold, the project is carried on interim financing, usually from the bank [60]. Interim interest, points and fees can be repaid from 504 proceeds as eligible project costs [23]. But the debenture rate is set at the sale, after the borrower has committed to the project.
3. The take-out. The debenture is issued only after completion, the interim lender's disbursement certificate, and certifications that no unremedied substantial adverse change has occurred [60]. A delayed or troubled project can reach the debenture sale at a different Treasury yield, or with a change that has to be explained.

Stress a 504 deal on the bank rate and on the debenture rate at sale. Eligibility and documentation are covered in the SBA 504 feasibility study guide.

9. What lenders should require before approving a marginal project

A marginal project passes the base case and fails under ordinary stress, like the borrower in section 6. The answer is usually conditions, each tied to the scenario it fixes.

Skipping them has a cost: a loan kept current only by a reserve or an extension can still be adversely classified [50].

10. What a sponsor or business development officer can do before submission

Most marginal files can be improved before a lender sees them, by rerunning section 6 first.

All effects are from the illustrative examples on this page.

11. Credit reviewer checklist

For 7(a), 504 and B&I files alike; program rules are cited.

12. Change log, 2024 to November 2026

Confirmed items only.

13. Sources and methodology

Regulations are quoted from the 2026 CFR edition on govinfo.gov (revised as of January 1, 2026) [60][61], then checked against every Federal Register document since 2024 amending either part: the only later change to Part 120 is the February 10, 2026 base rate notification [6], and none to Part 5001 after December 12, 2025 [46]. Rates are from the Federal Reserve [8][9][10][11] and SBA's fiscal transfer agent site, which posted its November 2026 files on November 3 [4][7][59]. SOP 50 10 is published only as a Word file in a folder SBA's robots file closes to automated readers; it was not opened, and no SOP-only requirement is stated as fact [15]. Loan-level data in Tables 1 to 7 come from SBA's FOIA files as of September 30, 2026 [47]. Calculations use level monthly payments, annualized, and simple monthly construction interest on drawn balances; all loans, cash flows and the 1.20x floor are illustrative. Access: robots files were read before every host was used; USDA Rural Development and the Bureau of Labor Statistics refused automated access and were not used.

Lenders and CDCs will find lender resources in the lender feasibility study requirements guide. Questions about a specific project can go through the contact page.

Questions lenders and borrowers ask about SBA and USDA underwriting in 2026

What is the maximum interest rate on an SBA 7(a) loan in November 2026? With prime at 7.00% [8], the maximum variable rate at application is 10.00% for loans over $350,000, 11.50% for $250,001 to $350,000, 13.00% for $50,001 to $250,000 and 13.50% at $50,000 or less [1]. SBA's posted maximum fixed rates for November 2026 are 12.00% over $250,000, 13.00% for $50,001 to $250,000, 14.00% for $25,001 to $50,000 and 15.00% at $25,000 or less [4].

Can a variable-rate 7(a) loan end up above the maximum rate? Yes. The maximum is fixed as of the date SBA receives the application, and afterwards the rate moves one-for-one with the base rate, changing no more often than monthly [1]. A loan priced at prime plus 3.0 rises above 10.00% if prime rises.

Which base rates can a 7(a) lender use in 2026? Prime, SBA's Optional Peg Rate (5.00% for October to December 2026 [5]) and, since March 1, 2026, the 5-year Treasury, the 10-year Treasury and SOFR. With any index, the rate may not exceed prime plus the allowed spread for the loan size [6].

How is the SBA 504 debenture rate set? SBA sets it with the approval of the Secretary of the Treasury [28], as an increment above the 10-year Treasury rate, and it stays fixed for the 10-, 20- or 25-year term [13]. The 10-year Treasury yield was 4.84% on November 5, 2026 [8].

What is the maximum rate on the bank loan in a 504 project? SBA's October 1, 2026 notice sets it at 6% over the New York prime rate, or a lower state usury limit [5]: 13.00% at a 7.00% prime. The bank loan may float, and it is the part of a 504 financing exposed to rate increases.

What are the USDA B&I guarantee and fees for FY2026? For loans under $5 million: an 85% guarantee, a 3.0% one-time guarantee fee and a 0.55% annual retention fee. For $5 million to $25 million: 80% with the same fees. A guarantee issued before construction is complete costs 0.50% more [35].

When does USDA require a feasibility study for a B&I loan? For a guaranteed loan over $1,000,000 to a new business, a study by an independent qualified consultant acceptable to the agency is required. For smaller loans, and for any loan over $600,000 where the lender's analysis is not sufficient, the agency may require one [41].

How much equity does a USDA B&I borrower need? At closing, existing businesses need 10% balance sheet equity or an equivalent test; new businesses need 20%, or 25% for construction projects seeking a guarantee before completion. Appraisal surplus and bargain purchase gains do not count [36].

How much must a borrower contribute to an SBA 504 project? At least 10% of project cost, 15% if the business has operated two years or less or the building is limited or single purpose, and 20% if both apply [24].

Is meeting the minimum DSCR enough for approval? It is the regulatory floor, not a margin. A project at 1.25x can lose 20% of its cash flow before reaching 1.00x but only 4% before a 1.20x policy floor. SBA requires loans "so sound as to reasonably assure repayment" [19], and USDA requires repayment capacity over the life of the loan [37].

How should a lender stress test a marginal SBA or USDA loan? Run single and combined shocks to revenue, costs, rates and timing, add a reverse stress, set the pass rule in advance and tie a condition to each failure. Supervisors expect loan-level sensitivity analysis [49] and testing of interest rates, vacancy and operating expenses [48].

Do variable-rate SBA loans default more often? In SBA's loan file, variable-rate 7(a) loans charged off more often than fixed-rate loans in both cohorts studied: 7.6% against 4.8% for FY2010 to FY2016 approvals, and 4.4% against 2.5% for FY2020 to FY2022 approvals [47]. That is an association, partly reflecting which borrowers choose variable rates.

Related research and services

Consultant services: SBA feasibility study consultant · USDA feasibility study consultant · Feasibility study cost · Contact

Program overviews: SBA loan programs · USDA loan programs · Conventional lending · Bank construction loans · SBA vs conventional feasibility studies

Regulatory and DSCR research: Debt service coverage ratio for SBA and USDA · The 1.25x DSCR standard: rule or convention · SBA 7(a) DSCR under SOP 50 10 8.1 · SBA 504 DSCR: bank loan and CDC debenture · SOP 50 10 8.1 projections and forecast evidence · Lender feasibility study requirements: OCC, SBA, USDA · SBA vs USDA feasibility study differences · SBA and USDA financing by asset class · USDA B&I feasibility study consultant · Feasibility study document checklist

Methodology: Methodology · Bankable feasibility study framework · Financial projections · Market analysis

Asset classes: Hotel · Self-storage · Gas station · Car wash · RV park · Multifamily · Senior housing · Industrial · Medical office · Restaurant · Daycare · Brewery · Mixed-use · Wedding venue · Data center

Case studies and engagements: USDA B&I hotel, Gaffney, South Carolina · USDA B&I travel center, Winnie, Texas · Limited-service hotel, SBA 504 and conventional · SBA 7(a) engagements · SBA 504 engagements · All case studies

States: Texas · Florida · Ohio · California · New York · All locations

Sources

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2. U.S. Government Publishing Office (CFR 2026), 13 CFR 120.213, What fixed interest rates may a Lender charge?, https://www.govinfo.gov/content/pkg/CFR-2026-title13-vol1/xml/CFR-2026-title13-vol1-sec120-213.xml, accessed 2026-11-06
3. U.S. Small Business Administration, Maximum Allowable 7(a) Fixed Interest Rates, 87 FR 46883 (August 1, 2022), https://www.govinfo.gov/content/pkg/FR-2022-08-01/html/2022-16162.htm, accessed 2026-11-06
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