The Small Business Administration (SBA) charges a guarantee fee on SBA 7(a) loans. This guarantee ensures lenders against loss if the borrower defaults on the loan. The amount of the SBA guarantee fee varies based on the loan amount. In addition to the SBA guarantee fee, there are other fees charged on SBA loans.
If you’re ready to start the SBA loan application process, SmartBiz offers working capital loans up to $350,000 and commercial real estate loans up to $5 million. Its SBA loan experts can help you navigate the difficult SBA funding process in as little as 30 days. You can apply online application and get preapproved in as little as five minutes.
What Is an SBA Guarantee Fee?
When the SBA guarantees a loan, it assesses a fee, known as an SBA guarantee fee, that is passed on to you by your lender. With an SBA guarantee, the SBA is ensuring that the lender will be repaid the guaranteed portion of the loan in the event of default. This guarantee helps to keep SBA loan rates low and allows the lenders the ability to offer longer repayment terms.
The amount of the SBA guarantee fee is based on two things:
- The amount of the SBA loan: The SBA doesn’t guarantee 100% of your loan. Instead, they guarantee 75% to 85% of your loan and the guarantee fee a percentage of that dollar amount.
- The repayment term of the SBA loan: Any loan with a term of one year or less will have a 0.25% guarantee fee, while all other terms have guarantee fees of 3% or higher.
The SBA guarantee fee can range from 2% to 3.75% and can be included in the overall loan proceeds. These guarantee fees are only required on SBA 7(a) loans, but all types of SBA loans have fees of some sort that are paid to either the lender or the SBA.
SBA Loan Under $150,000 | SBA Loan $150,000-$700,000 | SBA Loan Above $700,000 | |
|---|---|---|---|
SBA Guarantee Fee | 2% | 3% | 3.5% |
Additional Fee on Amounts Above $1 million | N/A | N/A | 0.25% |
Percent of Loan Guaranteed by the SBA | 85% | 75% | 75% up to $3.75 million |
How SBA Loan Guarantee Fees Work
When a loan is approved for an SBA guarantee, the SBA requires the lender to pay a fee in exchange for the SBA’s guarantee to repay up to 85% of the loan. The lender passes this fee onto the borrower, rolling it into the loan where it is repaid as part of the loan.
The guarantee fee amount varies based on how much the SBA is guaranteeing for the lender. The fee is not based on the entire loan size but, instead, on the portion of the loan that the SBA promises to repay in the case of a default. The SBA’s guaranteed part of the loan ranges from 75% to 85%.
The lender also must pay the SBA an annual service fee of 0.55% of the guaranteed portion of the loan to continue guaranteeing the loan. This ongoing fee is not usually passed on to you.
SBA Guarantee Fees for Loans Under $150,000
Effective October 1, 2018, SBA loans in amounts less than $150,000 are subject to an SBA guarantee fee equal to 2% of the guaranteed loan amount. Before this date, the SBA had waived the SBA 7(a) guarantee fee for these smaller loans.
SBA Guarantee Fees for Loans Over $150,000
While the SBA guarantee fee is 2% for loans of less than $150,000, the fee increases to 3% of the guaranteed portion of the loan if the SBA loan is between $150,000 to $700,000. For SBA loans greater than $700,000, the fee starts at 3.5% of the guaranteed portion of the loan and increases incrementally once the loan amount is over $1 million.
SBA Guarantee Fees for Loans Over $1 Million
For SBA loans above $1 million, the total fee for the first $1 million is 3.5% of the guaranteed portion of the loan. Any dollar amount over above $1 million will be charged a 3.75% fee on the guaranteed part of the loan. The two fee amounts are added together to reach the total guarantee fee you’ll pay.
Below are some examples of how the SBA 7(a) guarantee fee can be calculated.
SBA Guarantee Fee Example
Loan Amount | Total Amount of the Loan Guaranteed by the SBA | Total Guarantee Fee | Guarantee Fee Breakdown |
|---|---|---|---|
$110,000 | $93,500 (85%) | $1,870 | 2% of $93,500 |
$160,000 | $120,000 (75%) | $3,600 | 3% of $120,000 |
$800,000 | $600,000 (75%) | $18,000 | 3% of $600,000 |
$2 million | $1.5 million (75%) | $53,750 | 3.5% of the first $1 million, plus 3.75% of the rest of the guaranteed portion ($500,000) |
If you’re looking for an SBA loan provider that is well-versed in making SBA loans, Celtic Bank is one of the top national SBA lenders. Celtic Bank can approve SBA 7(a) loans up to $5 million and is one of the few national lenders to offer an online application process.
Other Typical SBA Loan Fees
Both the SBA 7(a) loan and the SBA 504 loan have fees that are associated with other types of business loans. If you aren’t aware of these fees upfront, you may be surprised to see how much they could potentially increase the total cost of your loan. Preparing for these loan fees will help you know the size of the loan that you can afford before you apply for an SBA loan.
The SBA limits what fees can be charged and SBA Form 159 must be completed prior to closing on a loan. This form discloses whether or not any agents were paid to provide services during the loan application.
SBA Origination Fee: 0.5% to 3.5%
SBA 504 loans require origination fees similar to those allowable under SBA 7(a) program. With a loan through the SBA 7(a) loan program, a lender may also charge an origination fee to process the loan. Origination fees range from 0.5% to 3.5% and vary by lender and the amount of the loan.
SBA Loan Packaging Fee: $2,000 to $4,000
To improve your approval chances, it is important that your loan documents are packaged together in a detailed and easy to understand way. A loan provider will typically charge an SBA loan packaging fee to cover the effort put forth in packaging your application and getting it approved by the SBA to be guaranteed. The range for this fee generally ranges from $2,000 to $4,000.
SBA Loan Broker Fee: 1% to 4%
Broker fees are paid directly to third parties that package your loan or introduce you to the lender who funds your loan. Broker fees aren’t allowed by the SBA but are often charged as service or packaging fees. These fees are not standard and require you to engage someone to help you get your loan funded directly. Depending on the size of your loan, the fees can range from 1% to 4% of your total loan amount.
SBA Loan Service Fees
An SBA loan provider may charge ongoing service fees to manage your loan. These fees will be charged monthly or quarterly and are generally for services like billing and keeping accurate records of payments made. These vary by lender, but you can expect them to range from 0.25% to 0.75% of the remaining balance on the loan for each billing cycle.
SBA Loan Closing Costs
In addition to the other fees associated with SBA loans, there are also a group of fees that are often lumped together and referred to generically as loan closing costs. These fees include appraisal fees, business valuation fees, environmental fees, title fees, and attorney review fees.
Common SBA loan closing costs include:
- Appraisal fees: You may need to have an appraisal completed on a piece of property if you’re using it as collateral or purchasing it with loan proceeds. These fees range from $2,000 to $5,000 in most states. Appraisals on special use commercial properties could cost as much as $10,000.
- Business valuation fee: If you’re using SBA funds for a business acquisition, you’ll need a valuation of that business. These costs can range from $5,000 to $30,000 or more depending on the business’s size and how complicated the valuation is.
- Phase I environmental report fee: If you’re purchasing commercial real estate, or using it as collateral for your loan, the loan provider may require an environmental report. These reports identify potential or existing environmental issues that may harm the property in the future and cost between $2,000 and $3,000 depending on your state.
- Title fee: When purchasing real estate, you’ll need to make sure the property has a clean title, free of any other claims to it. The title fees pay for United States Uniform Commercial Code (UCC) lien searches, buying title insurance, and recording your new title at closing. These fees can range from $1,000 to $2,500.
- Attorney review fee: In most cases, an attorney will need to review all of the loan documents before closing. The expense of this review generally ranges from $2,000 to $3,000.
Except for any service fees, which can be ongoing, these are all one-time fees that are either charged at closing or financed as part of the loan. To move forward through the loan process, you will typically have to pay deposits at different parts of the loan process to show the lender you’re prepared to close the loan.
What Affects SBA Loan Fee Amounts
Except for the SBA guarantee fee, that is predetermined by the SBA, none of the fees charged are standard for all SBA loan providers. Loan fees vary by lender and are based on many different attributes.
Some of the attributes that go into deciding which of these fees you’ll pay are:
- Purpose of your loan: Extra fees are generally associated with loans that involve the purchase of real estate, or that use specific property as collateral. If you’re purchasing a business, then there will also be additional fees for things like getting a business valuation.
- Third-party involvement: There could be additional fees if you have a third party involved in the loan process. Also, the size of fees charged can vary based on which third party you or your lender uses to complete legal, environmental, or other tasks required prior to closing.
- Amount of your loan: The dollar amount of your fees can depend on the size of your loan if a percentage is charged instead of a set amount.
- Creditworthiness: Your lender will decide whether or not they charge specific fees, and when you must pay them. Deposits are an example of a typical cost that a lender may reduce based on your credit profile. Better credit may result in a lower deposit amount.
- Collateral: Collateralization helps the loan provider see you as less of a risk, and fees are typically reduced when you have sufficient collateral to back the loan.
If you’re ready to apply for an SBA loan, we recommend using SmartBiz. SmartBiz is the SBA loan provider Fit Small Business used when looking for financing. With its streamlined application and approval process, SmartBiz is often able to get you funded within 30 days. You can prequalify online in five minutes.
When Do You Pay SBA Loan Fees?
SBA loan guarantee fees are added to your total loan balance at closing and repaid as part of your monthly payment. However, the other fees associated with your SBA loan will be paid at varying stages of the loan process.
SBA loan providers will generally require you to pay deposits during the lending process that show your commitment to closing your loan. These deposits typically count as either part of your down payment on the loan, or as a prepayment of the fees that are charged at closing. You must be able to pay all of the required deposits and fees as they arise.
A standard breakdown of when and how fees and deposits are paid is:
Paid as Deposits | Paid at Closing | Rolled Into Your Loan |
|---|---|---|
|
|
|
All of the fees listed as “Paid as Deposits” are typically paid through an additional deposit to the lender, if the funds from the initial deposit are insufficient to cover the expenses. The graphic below represents when each fee and deposit is generally paid during the SBA loan process below.
SBA 504 Loan Fees
The SBA 504 loan doesn’t have a specific guarantee fee like the 7(a) loan does, but it does have standard loan fees similar to the guarantee fee associated with a 7(a) loan. These standard fees are about 3% to 3.5% of your loan. This fee, like the guarantee fee of the 7(a) loan, can be financed as part of your total loan.
SBA 504 loans are most often used to finance commercial real estate. When getting an SBA 504 loan, you’re combining two loans, a loan from a lender, like a bank, and a second loan from a nonprofit community development corporation (CDC). This combination helps the SBA achieve their policy goals, and it enables you to get financing with lower interest rates and longer terms than you may be able to find elsewhere.
The bank almost always charges an origination fee of about 1% to fund these loans. The SBA charges 0.5% on the bank’s loan, and around 2.65% on the CDC loan. The SBA guarantees 100% of the CDC loan in exchange for these origination fees. The CDC will also charge a $2,000 to $3,000 flat fee for funding the loan. The table below shows an example of what these origination fees would look like for a project funded through the SBA/CDC 504 loan program.
Example SBA/CDC 504 Loan Project
Total Loan Amount | $5 million |
$5 million | $500,000 (10%) |
Bank Loan Amount | $2 million (40%) |
CDC Loan Amount | $2.5 million (50%) |
Total Origination Fees | $98,750 |
Fees Explanation | Bank’s 1% fee on their loan = $20,000 SBA 0.5% on bank loan = $10,000 SBA 2.65% on CDC loan = $66,250 CDC Flat Fee = $2,500 |
All of these fees can be financed into your total loan amount.
SBA Guarantee Fee Frequently Asked Questions (FAQs)
A lot of information about SBA guarantee fees and other SBA loan fees have been shared in this article, including what they are and how they are determined as well as an overview of other SBA loan fees you may encounter. If you have any questions about any of the information presented here, you can post them in the Fit Small Business forum.
What is the SBA guarantee fee?
The SBA guarantee fee is a fee charged by the Small Business Administration, in exchange for payment of this fee the SBA agrees to repay a percentage of the loan to the lender in the event the borrower defaults. The guarantee reduces the risk to the lender, which lowers interest rates charged on guaranteed loans.
What percentage does the SBA guarantee for a loan?
The percentage of an SBA loan covered by an SBA guarantee ranges from 75% to 85% depending on the specifics of the loan. For loans of $150,000 or less, the SBA will guarantee 85% of the loan amount. Loan amounts above $150,000 will have an SBA guarantee of 75% of the loan amount.
How much do you have to put down on an SBA loan?
In general, an SBA loan will require a down payment of 10% to 20% of the amount being borrowed. The exact amount of the required down payment will be determined by your lender and will be based on your creditworthiness and credit history.
Bottom Line
SBA loan providers are charged SBA guarantee fees in exchange for guaranteeing up to 85% of your loan in the event of a default. These guarantee fees are usually passed on to you and financed into your total loan amount. There are also several other fees associated with SBA loans beyond the guarantee fee. It’s important to know what you potentially could be charged in fees before you apply so that you can accurately predict your loan costs.
Once you have a pretty good idea of what your loan costs could be and you’re ready to move forward, then we recommend using SmartBiz as your loan provider. SmartBiz can get you funded for up to $350,000 for working capital or up to $5 million for commercial real estate. You can prequalify within a few minutes and be fully funded within 30 days.
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