Is adjustable rate scary? Changes quarterly based on prime...

[Ellie Narie]

How scary is it to have an adjustable rate? Could it shoot up to 15% interest like back in the past? I'm getting a 100% financed sba loan for an office building, and their rate is adjustable. There are hefty early pay off penalties (several percent within the first few years), plus the building doesn't have 25% equity naturally, so it's not like I could refinance anyway. 

Should I be prepared for possible 10%+ interest rates? 

[James Jeter]

Hi Ellie,

Is it a 7(a) loan? Small Business Administration (SBA) loans are subject to SBA maximums. They can be found below. All the information about SBA loans can be found HERE

I would definitely read what your loan documents state. They should tell you what the CAP is for the loan.

Also, the link I posted states the following about variable interest rates

"Variable rate loans may be pegged to the lowest prime rate, the LIBOR Rate, or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the Federal Register. The lender and the borrower negotiate the amount of the spread, which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must not be more often than monthly and it must be consistent (e.g., monthly, quarterly, semiannually, annually, or any other defined period). The maximum rate for SBA Express and Export Express loans is Prime + 6.5 for loans of $50,000 or less. For loans of over $50,000, it is Prime + 4.5."