A basis point (bp or bps) is one one-hundredth of a percentage point, or 0.01%. It is the standard unit used in finance to express small changes in interest rates, credit spreads, and loan pricing. When someone says “SOFR moved up 25 basis points,” they mean SOFR increased by 0.25%. The term eliminates the ambiguity that arises when discussing percentage changes of percentages — saying “rates rose 50 basis points” is unambiguous, while “rates rose half a percent” could be misinterpreted. In CRE debt, basis points are used to quote everything from loan spreads (e.g., “SOFR + 250 bps”) to cap costs, swap rates, and changes in Treasury yields.
How It Works in Practice
Basis points matter enormously at portfolio scale. On a $50 million loan, a single basis point equals $5,000 per year in interest cost. A 25-basis-point change in your spread at origination means $125,000 annually — a material difference that compounds over a 5- or 10-year term. When evaluating competing loan quotes, borrowers compare spreads in basis points to get an apples-to-apples view: one lender at SOFR + 225 bps versus another at SOFR + 240 bps represents a 15-bps difference that may or may not be offset by fee structure and covenant flexibility. In The Debt Stack weekly brief, LoanBoss reports rate movements in basis points so CRE professionals can quickly quantify the impact on their portfolios.
Related Terms
Part of the LoanBoss CRE Debt Glossary. For hedging-specific terms, see Pensford’s resources.