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  **TO:**        All SBA                                  **CONTROL NO.:** 5000-1082
                 Employees                                                 

  **SUBJECT**:               Implementation of SBA's      **EFFECTIVE:**   11/20/2008
                             Addition of LIBOR Plus 3                      
                             Percent as a Base Rate                        
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On November 13, 2008, SBA published an interim final rule that changed
the definition of "base rate" set out in 13 CFR 120.214(c) to allow a
new optional base rate: One Month LIBOR plus 3 percentage points ("LIBOR
Base Rate"). On November 14, 2008, SBA issued Procedural Notice
5000-1081 to explain the addition of the LIBOR Base Rate.

In addition to adding a new base rate, under the revised regulation, the
base rate in effect on the first business day of the month will
determine the basis for the initial interest rate for any loan
application received by SBA during that month. (Historically, the
initial interest rate was determined as of the date the loan application
was received by SBA.)

As a result of these changes, SBA has revised the relevant loan
application forms as well as the Loan Authorization to accommodate the
new LIBOR Base Rate. SBA Form 1920SX - Part B (Supplemental Information
for SBA Express, Pilot Loan Programs and PLP Processing), SBA Form 2238
SBA Express/Patriot Express Guaranty Request (Eligibility Authorized),
and SBA Form 2301 (Part B) (Lender Advantage Initiative -- Lenders
Application for Guaranty) have replaced "P + \_\_\_\_\_" with the
following data requirements. (SBA Form 4-I, Lender's Application for
Guaranty or Participation, already has a space in which to identify the
optional base rate.)

Prime rate\* = \_\_\_\_\_\_\_ + Spread \_\_\_\_\_\_ = Loan Interest
Rate: \_\_\_\_\_\_\_\_

LIBOR \*(1 month) + 3.0% = \_\_\_\_\_\_\_ + Spread \_\_\_\_\_\_ = Loan
Interest Rate: \_\_\_\_\_\_\_\_

SBA Peg Rate = \_\_\_\_\_\_\_ + Spread \_\_\_\_\_\_ = Loan Interest
Rate: \_\_\_\_\_\_\_\_

\*Rate in effect on first business day of month as identified in a
national financial newspaper or website.

For example, if an application is received by SBA in November of 2008
(on or after the effective date of Notice 5000-1081), the following
would be the applicable base rate options:

**Prime:** 4.0 % (as in effect on the first business day of November)

**LIBOR:** 2.36 % (as in effect on the first business day of November) +
3.0 %= 5.36

**SBA Peg Rate:** 4.63 %(as in effect for the period between October 1,
2008 and December 31, 2008)

The applicable loan interest rate would then be the "base rate + the
spread."

As noted in Notice 5000-1081, these changes are applicable to 7(a) loan
applications that lenders may currently have internally in process, but
they are not applicable to loan applications that have already been
received by SBA or loan applications that have been approved by SBA. As
a result, lenders cannot change the base rate of an existing
SBA-guaranteed loan through a servicing action.

SBA field offices should advise lenders of these changes.