SOFR is the daily overnight interest rate based on U.S. Treasury repurchase agreement (repo) transactions. It replaced LIBOR as the benchmark rate anchoring most variable-rate commercial loans, adjustable-rate mortgages, and floating-rate bonds.
SOFR is published daily by the Federal Reserve Bank of New York and represents the cost of borrowing cash overnight using U.S. Treasury securities as collateral. Because it is grounded in actual transaction data from the roughly $1 trillion-per-day Treasury repo market, it is considered more robust and manipulation-resistant than LIBOR, which was based on bank submissions. The LIBOR-to-SOFR transition was mandated following the 2012 LIBOR manipulation scandal. By June 30, 2023, USD LIBOR ceased publication, and SOFR became the dominant replacement. Lenders converting existing LIBOR-based loans to SOFR typically apply a spread adjustment (the 5-year median difference between SOFR and 1-month/3-month LIBOR) to approximate economic equivalence. For small business borrowers, SOFR matters most on variable-rate SBA 7(a) loans (which are SOFR-based since 2023) and commercial real estate bridge loans with floating-rate pricing. A loan priced at 'SOFR + 250 bps' means: if SOFR is 5.30%, your rate is 7.80%. When SOFR moves, your rate moves. SOFR variants used in lending include 30-day Average SOFR, 90-day Average SOFR, and Term SOFR (which is forward-looking, like the old LIBOR structure). The Federal Reserve Bank of New York publishes daily SOFR rates at https://www.newyorkfed.org/markets/reference-rates/sofr. The Federal Reserve's LIBOR transition guidance (https://www.federalreserve.gov/supervisionreg/libor-transition.htm) explains the regulatory backdrop for the switch from LIBOR to SOFR and the OCC's related guidance for national banks.
SOFR (Secured Overnight Financing Rate) replaced USD LIBOR as of June 30, 2023, per the Alternative Reference Rates Committee (ARRC) and regulatory direction from the Federal Reserve and OCC. Other currencies use their own LIBOR replacements: SONIA (Sterling), ESTER (Euro), TONA (Yen).
Variable-rate SBA 7(a) loans issued after 2023 are priced off SOFR rather than the prime rate or LIBOR. The SBA sets maximum spreads over SOFR by loan size and term. When SOFR rises (as it does during Fed rate hikes), your rate rises on the next reset date. Fixed-rate SBA loans are not affected by SOFR movements.
No. The federal funds rate is the rate banks charge each other for overnight uncollateralized loans, set by the Federal Reserve's FOMC. SOFR is an overnight secured rate collateralized by U.S. Treasuries. They move in the same direction (both are influenced by Fed policy), but SOFR is typically slightly below the federal funds rate because it is collateralized and therefore less risky.
Term SOFR is a forward-looking rate for specific tenors (1-month, 3-month, 6-month, 12-month) based on SOFR derivatives markets, published by CME Group. Unlike overnight SOFR, Term SOFR is known at the beginning of an interest period (like LIBOR was), making it administratively simpler for loan contracts that need the rate set in advance.