How Interest Rate Locks Work in Commercial Lending
Locking your rate in commercial lending is more nuanced than in residential. The mechanics, timing, fees, and risks differ significantly. For larger commercial transactions, understanding the lock structure is as important as understanding the rate itself.
When Locks Happen
Most commercial lenders lock the rate at or near commitment — typically 30 to 60 days before closing. Some lenders offer earlier locks for larger transactions, but they may charge an additional fee or use floating rates with a cap.
Lock Fees and Float-Down
Some lenders charge a lock fee, particularly for longer lock periods or large loans. Float-down provisions — which allow the borrower to capture a lower rate if rates drop — may be available but typically come at a cost.
Breakage and Penalties
If a deal does not close after a rate is locked, the borrower may owe a breakage fee — particularly on rates locked through forward delivery commitments common in agency lending.
Index vs Spread
Commercial rates are typically priced as an index (Treasury, SOFR, Prime) plus a spread. The lender may lock the spread early and the index at closing, or lock the total rate. Understand which has been fixed.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.