SOFR vs Prime: What a $100,000 Business Credit Line Costs

SOFR and Prime Measure Different Borrowing Markets

The Federal Open Market Committee maintained its target range at 3.75%–4.00% on October 28. That policy range, the effective federal funds rate and a business loan’s contractual rate are separate figures.

The New York Fed defines SOFR as a measure of overnight cash borrowing secured by Treasury securities. Its EFFR methodology measures overnight federal funds transactions. Neither observation is a retail business lending offer.

Prime is a bank lending reference rate. H.15 reports the rate posted by a majority of the largest 25 insured US-chartered commercial banks, ranked by domestic assets. Its November 13 release records 7.00% for November 12: three percentage points above the Fed range’s upper bound.

Consequently, comparing SOFR plus 4% with prime plus 2% requires adding the benchmark first. Under those explicitly illustrative margins, the annual rates are 7.90% and 9.00%, respectively. Different margins could reverse the result.

For policy context, see JournalArta’s Fed December 2026 hike risk for borrowers and savers. The purchasing decision here is narrower: establish which benchmark the agreement names, when it resets, whether a floor applies and what fees accompany it.

Published Credit-Line Terms Require Careful Comparison

The following table separates advertised products from an illustration and a regulatory ceiling. Dollar borrowing costs use a constant $100,000 draw and annual interest divided by 12; they exclude fees and principal repayment. Product-specific prime definitions must be confirmed with the lender.

Bank of America’s introductory rate remains variable. Its subsequent numerical rate is not disclosed on the product page; pricing depends on creditworthiness, the banking relationship and approved line amount. Annual renewal is discretionary. A short introductory period therefore cannot establish the cheapest facility over the business’s full borrowing horizon.

SBA Caps and the Cost of a Quarter-Point Increase

Published SBA 7(a) loan rates are negotiated within regulatory limits. SBA currently lists maximum variable spreads of 6.5 percentage points for loans of $50,000 or less; 6 points for $50,001–$250,000; 4.5 points for $250,001–$350,000; and 3 points above $350,000 (SBA lender guidance).

The rule establishing these standardized limits took effect August 1, 2022. With prime at 7.00%, the corresponding prime-based ceilings calculate to 13.50%, 13.00%, 11.50% and 10.00%. These are maximums, not promised offers, and should not be substituted for a lender’s actual quote.

For the $100,000 comparison, assume the entire balance remains outstanding, margins remain unchanged and interest is approximated as principal × annual rate ÷ 12:

• Prime +2%: 9.00% produces $750 monthly interest. A 25-basis-point benchmark increase produces 9.25% and approximately $770.83.
• SOFR +4%: 7.90% produces approximately $658.33 monthly interest. The same assumed benchmark increase produces 8.15% and approximately $679.17.

Each increase adds $250 annually. The initial difference between these assumed facilities is $1,100 annually before fees. Negotiating the spread therefore deserves attention alongside monitoring central-bank decisions.

These calculations are illustrations, not offers or personalized financial advice. They exclude amortization, changing balances and fees. Ask lenders to calculate contractual interest using the agreement’s day-count convention and reset schedule.

Match the Facility to the Cash-Flow Gap

For seasonal inventory or delayed customer payments, compare a revolving business line of credit using expected draw amounts and repayment dates. Request the continuing margin, renewal conditions, guarantees and complete fee schedule in writing. Evaluate Bank of America’s introductory offer over the full planned borrowing period; assess Wells Fargo’s actual approved margin against competing quotes.

For SBA-backed borrowing, request negotiated pricing below the applicable ceiling and identify the precise program. SBA describes its Working Capital Pilot as supporting borrowing against receivables and inventory, making it a relevant discussion for businesses with those financing needs (SBA program guidance).

For UK operations, JournalArta’s Bank of England Bank Rate explainer provides separate context. Keep this comparison in USD; obtain currency-specific quotes for operations in the UK, Canada, Australia or Singapore.

Also examine the cash gap itself. Review settlement arrangements alongside the Stripe vs PayPal vs Square fees comparison. If considering a high-yield business savings account while carrying debt, compare the written deposit yield with borrowing costs and liquidity requirements.

Choose financing by the total cost of the expected balance over its expected life. A lower benchmark alone cannot establish better value: the margin, fees and continued availability of the credit determine whether the facility fits the business.