By Aaron Dillard
CEO / President, Chairman of the Board, Pryority Bank
“I listen to the talking heads freak out about 7% like it is a historic emergency. It isn’t. Look at prime. In 1960, it averaged just under 5%. In 1970, it started at 8.5%. In 1980, the annual average was over 15%, and it touched 21.5% at the end of that year.
For years after the financial crisis, and again during the pandemic, the Fed kept its policy rate near zero. An entire generation came to think of cheap money as normal.
That was the exception. Seven percent is just the price of money coming back from a fake floor. Depositors finally earn something, and borrowers can still get a deal done if the deal actually works.
The deal working is the part people skip. Cheap money hid weak numbers. At a 3% borrowing rate, a sloppy purchase could still look fine. At 7%, the asset has to pay the note.
I always say cash is king, and I mean it. That does not make all debt wrong, far from it. Debt that builds or buys assets is different from debt that buys feelings. If you want to grow real wealth, you leverage the right asset. You do not leverage a lifestyle.
A simple rule of thumb is 1.2X debt service coverage. Cash flow covers the payments 1.2 times. That means cash flow is 20% above the required debt payments.
For me, that is the minimum. I would not get comfortable living there.
For me, 1.35X is the right spot. Enough room if cash flow drops and you are still covering the payments.
Run the coverage using the rate and terms available for your loan, not the rate you wish you still had. If the number only works at 3%, it never worked.”
Aaron Dillard’s 7% reference is the Wall Street Journal Prime Rate, or WSJ Prime, as of September 30, 2026. The historical figures below provide context for his perspective on borrowing and cash flow.
| Article Reference | Fact or figure | Source |
| WSJ Prime on September 30, 2026 | 7%, effective September 17, 2026. | WSJ Money Rates |
| How WSJ Prime is determined | WSJ publishes the corporate loan base rate shared by at least seven of the 10 largest U.S. banks. It is not an average of their rates. | WSJ definition |
| What the Fed sets | The Federal Open Market Committee sets the federal funds target range. On September 30, 2026, that range was 3.75%–4%. Federal funds transactions generally involve overnight lending of reserve balances. | Federal Reserve rate decision and New York Fed explanation |
| How prime relates to the Fed’s rate | Banks set their own prime rates, influenced by the federal funds target range. On September 30, WSJ Prime was three percentage points above the range’s 4% upper limit. | Federal Reserve explanation and WSJ Money Rates |
| What a borrower pays | Prime is a lending benchmark. An individual loan’s rate may differ based on the borrower, loan product and terms. | Fulton Bank explanation |
| Prime in 1960 | The annual average was 4.82%. | Federal Reserve historical data through FRED |
| Prime in 1970 | The year began at 8.5%. The annual average was 7.91%. | Historical rate changes and annual averages |
| Prime in 1980 | The annual average was 15.26%. Prime reached 21.5% on December 19. | Annual averages and historical rate changes |
| Recent low-rate periods | The federal funds rate was near zero from late 2008 through 2015 and again from early 2020 through early 2022. Prime stood at 3.25% during much of those periods. | Federal Reserve history and prime rate history |
| What debt service coverage measures | DSCR compares cash flow available for debt payments with required debt payments. For income-producing commercial real estate, it is generally net operating income divided by annual debt service. | OCC Commercial Real Estate Lending handbook, page 43 |
| What 1.2X looks like | $120,000 in annual cash flow available for debt service ÷ $100,000 in annual debt payments = 1.2X coverage. That leaves $20,000 above the required payments. | Illustrative calculation using the DSCR formula |
| Why coverage requirements vary | Appropriate coverage depends on cash flow stability, loan terms and risk. More volatile cash flow may warrant higher coverage. Aaron’s preferred 1.35X is his stated rule of thumb. | OCC handbook, page 43; Aaron’s commentary |
Historical prime figures use the Federal Reserve’s published bank prime series. WSJ Prime is the source for Aaron Dillard’s September 30, 2026 reference.
This content is for educational or informational purposes only and does not constitute personalized financial guidance. Aaron Dillard’s comments reflect his perspective. The Wall Street Journal Prime Rate referenced was 7% as of September 30, 2026. Individual loan rates and terms may differ.
