Small Business Administration (SBA) loans are issued by participating lenders designated by the SBA but are guaranteed by the government in the event of a default. To cover the potential costs of a default, an SBA guarantee fee is often included as part of the costs associated with getting a loan. The amount of this fee varies depending on your loan amount and repayment term and can range from 0% to 3.75%.
SBA loans represent a lower risk to lenders since they know they’ll receive some form of reimbursement from the government if a borrower defaults. As a result, rates on SBA loans can be some of the most competitive in the market.
How the SBA Guarantee Fee Works
Fees are updated each year but currently range from 0% to 3.75% of the amount of the loan guaranteed by the SBA on a 7(a) loan. Meanwhile, for the 2024 fiscal year, SBA 504 loans carry no guarantee fee.
To figure out the exact amount you could be charged for the SBA guarantee fee, you’ll need to know three things:
- Loan amount: The maximum amount for a standard SBA 7(a) loan is $5 million. However, this can vary depending on the lender and the specific loan program you choose. You can learn more in our guide on the different types of SBA loans.
- Length of repayment: Just like the loan amount, the repayment term can vary depending on the lender you choose and the loan program you’re getting.
- Portion of loan insured by the SBA: The SBA guarantee fee is determined by the amount of the loan being insured by the SBA. The insured amount is 85% for loans up to $150,000 and 75% for larger amounts.
How to Determine the SBA Guarantee Fee Amount
You can use the chart below to find out how much you may be charged for the SBA guarantee fee on an SBA 7(a) loan.
| Loan Amount | Percentage of Loan Guaranteed by the SBA | Guaranteed Loan Amount | SBA Guarantee Fee for Loans 12 Months or Less | SBA Guarantee Fee for Loans Greater Than 12 Months |
|---|---|---|---|---|
| $150,000 or less | 85% | Up to $127,500 | 0% | 0% |
| $1,000,000 or less | 75% | Up to $750,000 | 0% | 0% |
| $1,000,001 to $2,000,000 | 75% | $750,000.75 to $1,500,000 | 0.25% | 1.45% of the guaranteed portion of the loan up to $1 million, plus 1.70% of the guaranteed portion of the loan over $1 million |
| $2,000,001 to $5,000,000 | 75%, with a maximum of $3.75 million | $1,500,000.75 to $3,750,000 | 0.25% | 3.50% of the guaranteed portion of the loan up to $1 million, plus 3.75% of the guaranteed portion of the loan over $1 million |
Examples of How to Calculate the SBA Guarantee Fee
The SBA guarantee fee on your 7(a) loan is a product of your loan amount, the portion that’s guaranteed by the SBA, and the length of the loan term. Below are some examples of how the fee is calculated based on a few sample loan amounts and loan terms.
| Loan Amount | Loan Term | Percentage of Loan Guaranteed by the SBA | Loan Amount Guaranteed by the SBA | SBA Guarantee Fee Percentage | SBA Guarantee Fee Calculation |
|---|---|---|---|---|---|
| $125,000 | 12 months | 85% (loan amount <$150,000) | $125,000 × 85% = $106,250 | 0% | $106,250 × 0% = $0 |
| $500,000 | 12 months | 75% | $500,000 × 75% = $375,000 | 0% | $375,000 × 0% = $0 |
| $1,250,000 | 12 months | 75% | $1,250,000 × 75% = $927,500 | 0.25% | $927,500 × 0.25% = $23,187.50 |
| $1,250,000 | 18 months | 75% | $1,250,000 × 75% = $927,500 | 1.45% | $927,500 × 1.45% = $134,487.50 |
| $1,500,000 | 12 months | 75% | $1,500,000 × 75% = $1,125,000 | 0.25% | $1,125,000 × 0.25% = $28,125 |
| $1,500,000 | 18 months | 75% | $1,500,000 × 75% = $1,125,000 | 1.70% | $1,125,000 × 1.70% = $191,250 |
| $2,250,000 | 12 months | 75% | $2,250,000 × 75% = $1,687,500 | 0.25% | $1,687,500 × 0.25% = $42,187.50 |
| $2,250,000 | 24 months | 75% | $2,250,000 × 75% = $1,687,500 | 3.75% | $1,687,500 × 3.75% = $632,812.50 |
Other SBA Loan Fees & Closing Costs
There may be other fees associated with facilitating an SBA loan in addition to a guarantee fee. Depending on the details of your loan, the SBA may impose charges on the lender (that often get passed to the borrower) that pertain to closing costs or the underwriting process.
Loan fees that may apply to your SBA loan may include the following items:
- Packaging fee: Typical fees can range between $2,000 and $4,000. This fee is meant to cover the costs associated with reviewing and compiling the required documentation for your loan file.
- Extraordinary service fee: Loan applications that are more complex may be charged an additional fee of up to 2%. An example can include a loan for real estate construction in which additional steps must be taken to review the project, value, and condition of the property.
- Prepayment fee: If your SBA 7(a) loan has a repayment period greater than 15 years, you could be charged a fee if you pay your loan too quickly. If more than 25% of your loan is paid, you could be charged a fee of up to 5% in the first year, 3% in the second year, and 1% in the third year.
- Underwriting fees: Working with a Certified Development Company (CDC) for an SBA 504 loan means you may be charged this separate fee for having the company review your loan application.
- Annual service fee: On an SBA 504 loan, an annual servicing fee between 0.364% and 0.389% can apply depending on the details of your loan. The fee is calculated based on the outstanding balance of your loan and is meant to cover the costs of tracking and maintaining your loan.
Although SBA loans are guaranteed by the government, the loans are issued by private lenders. As a result, these lenders may charge additional fees and closing costs as part of reviewing and evaluating your loan application. Below are some examples of additional closing costs you may come across:
- Appraisal fees: If you are obtaining real estate, an appraisal will typically be required to verify its value and condition. Depending on the complexity of the property, fees can range from $1,000 to $5,000 or more.
- Title fees: If you will be acquiring real estate, a title search must be completed to verify the current owner, as well as the presence of any liens that may need to be paid. Title fees often include insurance, protecting you from errors made by a title company. Title fees can typically range from $1,000 to $3,000.
- Environmental report fees: If you’re purchasing commercial real estate, lenders will often require an environmental report to verify the presence of health or safety hazards. Fees generally run in the range of $2,000 and $4,000.
- Business valuation fees: If SBA loan proceeds are to be used to purchase another company, a third party is often required to conduct its own evaluation of what that company is worth. Depending on the size of the transaction and the complexity of the business, fees can start from around $5,000 to $30,000 or more.
- Attorney fees: If an attorney is brought on board to review the loan documents, it can be an added expense of $2,000 to $3,000.
- Origination or broker fees: In some instances, a lender may charge an origination fee between 0.5% and 3.5% to cover the costs associated with reviewing your loan to determine eligibility. If a third party was used to connect you with a lender willing and able to lend you funds, a similar amount could be charged as a broker fee.
When SBA Fees & Closing Costs Must Be Paid
Throughout the loan process, applicable fees—among other closing costs—will arise. These fees can be due in various stages, often with options to be included in the total loan amount or paid separately at loan closing.
- If you can choose when to pay certain fees, rolling fees into your loan amount would result in a higher payment but would mean fewer out-of-pocket costs when you close on the loan.
- Paying them separately from the loan amount would help you get a lower monthly loan payment, but you could deplete your cash reserves upon closing the loan.
The timeline of when certain fees are paid can vary depending on the details of your specific loan and lender. Here is a standard breakdown of when common fees are typically paid throughout the loan process.
| Paid Upfront | Paid at Closing | Rolled Into Your Loan |
|---|---|---|
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Frequently Asked Questions (FAQs)
How does the SBA guarantee fee work?
The SBA guarantee fee can differ depending on the loan program, loan amount, and length of the loan. The fee is required by the SBA and charged to the lender to help mitigate risk in the instance of loan default. Typically, the SBA guarantee fee can change each year, with amounts set by the SBA, and can also include adjustments to how the fees are determined.
When do I have to pay the SBA guarantee fee?
While the SBA charges the guarantee fee to the lender, these costs are typically passed on to the borrower. That said, the SBA guarantee fee can be rolled into your loan amount or paid as part of your closing costs. Rolling it into your loan amount means your monthly loan payments will be higher, but your cash-to-close requirement will be smaller.
What is a reasonable guarantee fee?
The guarantee fee on an SBA 7(a) loan can range from 0% to 3.75%. For fiscal year 2024, SBA 504 loans carry no guarantee fee. Other factors that can affect the fee are the loan amount and the length of the loan.
Bottom Line
SBA loan fees vary depending on the type of loan program you choose. Generally, you can expect an SBA guarantee fee between 0% and 3.75%, which is meant to help recoup the lender’s financial losses in the event of default. Although the cost may seem high, SBA loans can offer some of the most competitive rates available. If you’re thinking of getting an SBA loan, see our tips on how to get a small business loan to improve your chances of getting approved.
