Need Advice on Commercial Note: Rate .5% higher than stated index + margin
**TL;DR:** We went in to sign docs yesterday and the rate on the note was .5% higher than the fully indexed rate.  Is that common for commercial financing?

Index - 3.8% 5 Year Treasury Constant Maturity - as of 12/12/22  
Margin - 3%  
Rate - 7.3% (.5% higher than the fully indexed rate, which is 6.8%)

**The Context**: Our business is purchasing our first commercial property.  We have been working with a stellar local community bank for financing.  We've had some recent credit issues and it was a tough deal to get approved but they were able to approve us for a loan for the first position, and got an SBA 504 loan approved as a second which allowed us to come in with only 10% down.  Both loans are at the same rate, same terms, etc.  We were stoked given the situation!

**The Issue:** We went in to sign yesterday and as I was reviewing the promissory note for both loans I noticed an issue.  

* Both loans are based on the 5-Year Treasury Constant Maturity Index (CMT).  On December 12th, the day the docs were drawn, the note states that the index was 3.8%
* Both loans also have the same margin, which is 3% (which we felt was reasonable given our specific situation)
* **The interest rate for both notes is 7.3%**

**Questions: Here are the questions I asked the bank**

* Why isn't our rate 6.8%? 
* Why is the rate .5% higher than the fully indexed rate?
* Where is the extra .5% interest being accounted for?
* Is this a commercial loan thing?   


I went back and forth with the bank about this but I did not get an answer that made sense to me.  Their answer was something like "well, that's the rate (7.3%) that our board approved you for" and "we have to get board approval to redraw docs at a different (even if it's lower) rate.  

I did residential loans for several years and am pretty familiar with how ARMs work... I've just never seen an instance where the rate was higher to the fully indexed rate.

Again, this isn't a fly-by-night loan shark operation. This is a very reputable community bank that are huge supporters of small businesses in our local community.  Their answer just didn't sit well with me and I couldn't find any information so I thought I'd post to get some advice/insight.
[{"id": "j0chb62", "text": "That's your initial rate.  When it adjusts it will be rate=index+margin  Is it common?  It's whatever the bank says it is; and it's also negotiable.  Tell them to drop it or you'll shop it.", "replies": [{"id": "j0dchq2", "text": "I can confirm that the bank also told me \"7.3% is your rate because that's what we say it is\"... which was the impetus in asking here why wouldn't my rate = margin + index", "replies": [{"id": "j0g21tk", "text": "Community banks are wonderful and that's where I got my first commercial property loans.  Eventually we connected with the largest commercial lender in my state.  Their terms are better because they have a ton of money they have to lend and they need to attract business.\n\nInstead of 5 or 7 yr fixed terms (before the rate floats) we get 10 years.  They may do 25 year amortization instead of 20.   Once I reached the limit my community bank could lend me (based on their size) we started working with this bigger bank.\n\nHowever had my smaller community bank not believed in me and lent to me in the first place, I'd never be an attractive risk for the big bank to offer me stellar terms.  So I'm grateful to my community bank.\n\nI suggest you look at it this way... You're fortunate to get the property with only 10% down.  I have to put 30%.  At 90% loan to value you are a risky loan.  The bank needs what it needs to make it worth their while.  Be glad you got the loan at all and you got your building.  Half a % difference isn't enough to go bananas over.  Fwiw the big bank raised a rate on us at the last minute earlier this year as rates were moving.  It happens.  Commercial loans are different.\n\nCongrats and good luck!", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j1b1h94", "text": "It sounds like you\u2019re dealing with a shit banker. I\u2019m a commercial banker. It doesn\u2019t make sense. The banker needs to either explain that the cost of borrowing changed or the margin changed, or explain why the board added an extra .5%. You need to get a better answer than that to make it make sense. \n\nIf they want more margin for the risk, fine. Just say that you guys are changing the rate at the last minute. Either embrace that you didn\u2019t honor the quote or explain why it\u2019s changing. Don\u2019t try to give bullshit non answers.", "replies": [], "depth": 1}]