Small Business Administration (SBA) loans are issued by private lenders 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. If you’re thinking of getting an SBA loan, consider using SBG Funding. Rates start as low as prime plus 2.5%, and you can get up to $10 million in funding.
How the SBA Guarantee Fee Works
Fees can change 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 2023 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 | SBA Guaranteed Amount | SBA Guarantee Fee for Loans 12 Months or Less | SBA Guarantee Fee for Loans Greater Than 12 Months |
|---|---|---|---|
Up to $150,000 | 85% | 0% | 0% |
Up to $500,000 | 75% of the loan amount | 0% | 0% |
$500,001 to $700,000 | 75% | 0.25% | 0.55% |
$700,001 to $1 million | 75% | 0.25% | 1.05% |
$1,000,001 to $5 million | 75%, with a maximum of $3.75 million | 0.25% | 3.5% up to $1 million, plus 3.75% 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. Here are a few examples of how the fee is calculated.
Loan Amount | Loan Term | Percentage of Loan Guaranteed by the SBA | Loan Amount Guaranteed by the SBA | SBA Guarantee Fee Calculation | |
|---|---|---|---|---|---|
$100,000 | 6 months | 85% (loan amount less than $150,000) | $100,000 x 85% = $85,000 | 0% | $85,000 x 0% = $0 |
$175,000 | 12 months | 75% | $175,000 x 75% = $131,250 | 0% | $131,250 x 0% = $0 |
$600,000 | 18 months | 75% | $600,000 x 75% = $450,000 | 0.55% | $450,000 x 0.55% = $2,475 |
$750,000 | 24 months | 75% | $750,000 x 75% = $562,500 | 1.05% | $562,500 x 1.05% = $5,906.25 |
Other SBA Loan Fees & Closing Costs
Depending on the details of your loan, the SBA may charge your lender other types of fees. These are often passed on to you as the borrower. In addition, lenders usually have additional closing costs that you’ll need to pay for.
When SBA Fees & Closing Costs Must Be Paid
Some fees must be paid as deposits or as an upfront charge before you get the loan. Depending on the type of fee being charged, you might have the option to include it with your loan amount. You could also choose to pay it separately at 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.
Paid Upfront | Paid at Closing | Rolled Into Your Loan |
|---|---|---|
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Frequently Asked Questions (FAQs)
The SBA guarantee fee can be rolled into your loan amount, or it can be 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.
Yes, the SBA guarantee fee can change each year. Amounts are set by the SBA and can also include adjustments to how the fees are determined.
The guarantee fee can range from 0% to 3.75% on an SBA 7(a) loan. For fiscal year 2023, SBA 504 loans carry no guarantee fee. Other factors that can affect the amount of the fee are your loan amount and the length of the loan.
Bottom Line
If you’re getting an SBA loan, part of your closing costs may include an SBA guarantee fee between 0% and 3.75%. This fee is meant to cover a lender’s potential losses from loan defaults. 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.
