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GlossaryUpdated September 18, 2026

Prime Rate

The prime rate is the base rate banks use to price many business loans, including SBA 7(a) loans. Major banks moved it to 7.00 percent effective September 17, 2026.

By Luke Thompson, VP & Director, Capital Markets · Matthews Hotel Markets

Prime is a posted rate, not a traded one. The Fed does not set it, but banks move it in step with Fed decisions. On September 16, 2026 the FOMC raised the target range by a quarter point to 3-3/4 to 4 percent,[4] and BNY announced a 7.00 percent prime rate the same day, effective September 17.[3] The Fed's H.15 release, which reports the rate posted by a majority of the top 25 insured U.S. commercial banks, still showed 6.75 percent through September 16.[2]

For hotel owners, prime matters most on SBA 7(a) loans and local bank loans. SBA caps a variable-rate 7(a) loan over $350,000 at the base rate plus 3.0 percent.[5] With prime at 7.00 percent, that ceiling is 10.00 percent, as Matthews Hotel Markets' September 2026 rate sheet shows.[6] The ceiling is not a quote. Banks price inside it, and their spreads are set by the lender.

See SOFR for the other common floating index and SBA 7(a).

Worked example

Prime moved from 6.75% to 7.00% effective September 17, 2026.[3] SBA's maximum rate on a variable 7(a) loan over $350,000 is prime plus 3.0%,[5] so the cap moved from 6.75% + 3.00% = 9.75% to 7.00% + 3.00% = 10.00%. Hypothetical: on a $4,000,000 prime-based balance, the 0.25% move adds 0.0025 x $4,000,000 = $10,000 of interest a year, whatever the spread is.

Common misconceptions

  • The Fed does not set the prime rate. Individual banks do, and many follow the federal funds target.[1]
  • Prime plus 3 percent is SBA's ceiling on larger 7(a) loans, not the rate you will be quoted.[5]
  • Prime and SOFR are not interchangeable. Prime was 7.00 percent and SOFR 3.85 percent on September 17, 2026, so the spreads quoted over each are very different.[6]

Frequently asked

What is the prime rate right now?
7.00 percent at major banks, effective September 17, 2026, up from 6.75 percent.[3] Our rate sheet at /rates tracks it.[6]
My SBA loan is prime plus 2.75. What is my rate?
Add the spread to the current prime rate. At 7.00 percent prime, prime plus 2.75 is 9.75 percent. It resets when prime moves, on the schedule in your note.
Who decides the prime rate?
Each bank sets its own. The Federal Reserve reports the rate posted by a majority of the top 25 U.S. banks, and says many banks base it partly on the federal funds target.[1][2]
What is the highest rate a bank can charge on an SBA 7(a) hotel loan?
For a variable-rate loan over $350,000, the base rate plus 3.0 percent.[5] With prime at 7.00 percent that is 10.00 percent.[6]
Will my payment drop if the Fed cuts rates?
If your loan floats over prime, yes, after banks lower prime and your note's reset date arrives. A fixed-rate loan does not change. See /hotel-financing/hotel-loan-rates.

Sources

  1. What is the prime rate, and does the Federal Reserve set the prime rate? · Board of Governors of the Federal Reserve System
  2. Selected Interest Rates (Daily), H.15 · Board of Governors of the Federal Reserve System
  3. BNY increases prime lending rate to 7.00%, September 16, 2026 · BNY via PR Newswire
  4. Federal Reserve issues FOMC statement, September 16, 2026 · Board of Governors of the Federal Reserve System
  5. 7(a) loan program: terms, conditions, and eligibility · U.S. Small Business Administration
  6. Matthews Hotel Markets September 2026 rate sheet · Matthews Hotel Markets (first-party)

Related

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