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Prime rate
Also called WSJ prime, Wall Street Journal prime rate, base rate.
The benchmark published from a survey of large US banks' base lending rates, used as the index in variable-rate business loans and in SBA maximum rate calculations.
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
It is a survey figure, not a market-traded rate. The most widely cited version is published by the Wall Street Journal and changes when a majority of the largest banks surveyed change their own base rates - which in practice happens shortly after the Federal Reserve moves its policy target, since bank base rates track it.
Loans priced on prime state a margin: prime plus a spread. Only the prime half moves. Agreements differ on when a change takes effect - some reprice immediately on the day prime changes, others on the first day of the next quarter or the next billing cycle, and a floor may prevent downward movement below a stated figure.
SBA programs cap the spread a lender may charge over an allowable base rate, with the maximum varying by loan size and maturity under current program rules.
Some lenders now price off SOFR instead, particularly on larger facilities, which behaves differently: it is a transaction-based overnight rate with term versions, and it moves continuously rather than in steps.
Where this one catches people
Where you will meet this term
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Prime rate — common questions
What does prime rate mean?
The benchmark published from a survey of large US banks' base lending rates, used as the index in variable-rate business loans and in SBA maximum rate calculations.
Where does prime rate catch people out?
Prime is an index, not a rate anyone pays. Comparing two loans by saying both are 'prime-based' tells you only that they will move together - the borrower's actual cost is prime plus the lender's margin, and the reset language decides whether a Fed move reaches you next week or next quarter.
Is prime rate the same as an interest rate?
Prime rate 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 prime rate apply to?
Term Loan, Business Line of Credit, SBA Loan, Asset-Based Lending.
Is there a worked example of prime rate?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside prime rate?
Annual percentage rate, Interest rate, LIBOR / SOFR transition, Margin, Risk-based pricing.
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.