Find Me Funders
Basis point bp
Also called bp, bps, beeps.
One hundredth of one percentage point, used to state rate differences precisely: 100 basis points equals 1 percent.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The unit exists to remove ambiguity. Saying a rate rose by 1 percent could mean from 8 to 9 percent or from 8 to 8.08 percent. Saying it rose by 100 basis points can only mean the first.
You meet it in bank and SBA pricing, which is quoted as a spread over an index. Prime plus 275 basis points means the WSJ prime rate plus 2.75 percentage points, and the rate floats as the index moves. SBA 7(a) variable-rate loans work this way, with the agency capping the maximum spread a lender may charge over the permitted base rate; the caps vary by loan size and term and are set in SBA policy rather than negotiated.
Basis points also describe fees on facilities: an unused line fee of 25 basis points, a servicing fee of 50 basis points a year on a facility limit.
The unit is essentially absent from cash advance pricing, which is quoted as a factor and a term rather than as a rate over an index. That absence is itself informative about how the two markets think about money.
Where this one catches people
Basis points on a floating rate describe the spread, not the rate. A quote of prime plus 300 basis points tells you nothing about your payment until you know the index today and how often it resets. On a five-year loan, an index move of 200 basis points changes the payment materially, and most commercial notes pass that through to you rather than to the lender.
Worked through
A 250,000 facility at prime plus 275 basis points, with prime at 7.50 percent, prices at 10.25 percent. If prime rises 50 basis points to 8.00 percent, the rate becomes 10.75 percent and annual interest on a fully drawn balance rises by 250,000 x 0.50 percent = 1,250.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Basis point — common questions
What does basis point mean?
One hundredth of one percentage point, used to state rate differences precisely: 100 basis points equals 1 percent.
Where does basis point catch people out?
Basis points on a floating rate describe the spread, not the rate. A quote of prime plus 300 basis points tells you nothing about your payment until you know the index today and how often it resets. On a five-year loan, an index move of 200 basis points changes the payment materially, and most commercial notes pass that through to you rather than to the lender.
Is basis point the same as an interest rate?
Basis point is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does basis point apply to?
Term Loan, Business Line of Credit, SBA Loan, Equipment Financing, Asset-Based Lending.
Is there a worked example of basis point?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside basis point?
Amortization, Annual percentage rate, Factor rate, LIBOR / SOFR transition, Prime rate.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.