Prime rate

Definition

The benchmark variable SBA loans are priced against, plus a spread.

Why It Matters

It moves with the Federal Reserve, and the borrower's payment moves with it. That is why an acquisition loan's rate is rarely fixed for the life of the deal, and why the payment you model today can be different by the time you close. Underwrite at a rate above today's. The coverage that barely clears a lender's line at the current number is the coverage you lose first. The spread over prime is negotiable even when prime is not.

In numbers: A loan priced at prime plus 2.5% costs 9.25% when prime sits at 6.75%; if prime rises half a point, so does the loan, and the monthly payment follows.