What Interest Rates Are Childcare Centers Paying On SBA 7(a) Loans?

October 27, 2017

In the last six years, on a national basis, there have been 5,477 SBA loans made to childcare centers. The interest rate that borrowers pay on a SBA 7(a) loan (the most common type SBA loan) is typically a variable interest rate based on the current Prime Rate (now 4.25%) plus a percentage that has a maximum of 2.75%. So currently, the maximum interest rate on a variable rate SBA 7(a) loan is 7.00%. The Prime Rate has increased in the last year by 0.75%.

About 36% of all SBA 7(a) loans are made at the maximum rate. The below chart shows the percentage of SBA 7(a) loans issued at various interest rate percentages over the Prime Interest Rate in the last six years:

Percent of SBA 7(a) Loans Issued Variable Interest Rate % Over the Prime Rate
3.4% Under 1%
4.2% 1.00% to 1.24%
3.1% 1.25% tp 1.49%
7.0% 1.50% tp 1.74%
6.8% 1.75% to 1.99%
13.5% 2.00% to 2.24%
13.4% 2.25% to 2.49%
13.0% 2.50% to 2.74%
35.7% 2.75%

Over the last six years, about 62% of all childcare centers which received a SBA 7(a) loan, got one at a high interest rate (the Prime Rate plus 2.25% to 2.75%). About 18% of all childcare centers received a SBA 7(a) loan at under the Prime Rate plus 1.75%.

At today’s rates, refinancing a successful childcare center will typically reduce interest rates to a fixed rate of 4.5% to 5.5%.

By refinancing a $1.0 million outstanding loan balance, a childcare center paying a high rate can typically save $75k to $300k in interest expense over the remaining life of a loan, or reduce the monthly loan payments by $1,000 to $2,500 per month.

Nationwide, Childcare Brokers ONLY Finance Childcare Centers!

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