Explaining the SBA Guarantee Fee

The Small Company Administration (SBA) program offers low-interest loans to entrepreneurs to pay almost any business cost. The SBA doesn’t really pay for the loans; instead, they guarantee a part of them to reduce risk for conventional and alternative lenders.

The SBA attempts to shift the financial burden of its financial aid programs onto entrepreneurs rather than taxpayers, which is why lenders are charged an SBA guarantee fee. These expenses are then passed on to borrowers in the form of upfront fees by lenders. Depending on the guaranteed amount and repayment conditions, SBA guaranty costs vary from 2% to 3.75 percent.

You won’t find a better financing alternative than an SBA loan in terms of rates and conditions. However, managing SBA loans and other complications may be difficult—we’re here to assist. Before you obtain a new loan for your company, read this short and simple article to learn all you need to know about SBA guarantee costs.

How Much Does the SBA Guarantee Fee Cost?

When a borrower fails on a loan, the SBA Guarantee fee is used to pay the government’s costs. The SBA need money because it must pay lenders for a part of the default. This is when the SBA guarantee costs come in handy.

Who is responsible for the SBA Guarantee Fee?

Rather than increasing taxes to pay the expenses, the SBA charges lenders, who then charge borrowers, who then pass the cost on to the small companies receiving the assistance. Small company owners are ultimately responsible for the SBA guarantee costs.

Costs of SBA Guarantee Fees

When the SBA backs a loan, they don’t guarantee 100% of the loan; instead, they typically guarantee between 75% and 85% of the loan. The guarantee fee is determined by the SBA based on the guaranteed part of the loan, not the entire loan amount.

For example, if the SBA guarantees 75% of a $200,000 loan, the lender is only covered for a maximum of $150,000 if the borrower fails. The guaranteed part ($150,000 in this case) would then be charged your guarantee fee. Different fees apply to different SBA loan programs. Guarantee costs for SBA 504 loans are now 0.5 percent of the loan amount, whereas there are no guaranty fees on non-7(a) microloans. For additional information on guarantees and costs for various loan programs, see the SBA’s Quick Reference to SBA Loan Guarantee Programs.

Is the SBA Loan Guarantee Fee the Only Fee?

No, there are additional loan costs that you must pay to the SBA. Additional costs may be charged by the SBA and your lender, although the SBA sets limitations on how much a bank may charge for a loan.

“Lenders cannot impose a separate loan origination fee on an SBA guaranteed loan,” according to the SBA’s website. Lenders may impose ‘packaging costs,’ but they must be fair and customary for the services provided, as well as comparable with fees paid on similar-sized non-SBA insured commercial loans.”

At the time of loan distribution, all fees paid must be recorded on SBA Form 159 7(a) and signed by all parties.

Other costs associated with SBA 7(a) loans include:

SBA Loan Packaging Cost: To arrange your loan paperwork and enhance your chances of acceptance, loan providers usually charge an SBA loan packaging fee. The cost of this charge may range from $2,000 to $4,000.

Broker Fee for SBA Loans: If you hired a broker to help you get the loan, you may have to pay a broker fee. Although the SBA prohibits “broker fees,” these costs are often included in the packing costs. Broker fees typically vary between 1% and 4% of the entire loan amount.

SBA Loan Service Cost: To administer your loan, your SBA loan lender may charge an ongoing service fee. These charges go toward covering the expenses of billing, processing, and keeping records. At each billing cycle, loan servicing costs usually vary from 0.25 percent to 0.75 percent of the outstanding amount on your loan.

SBA Loan Closing Costs: SBA loan closing costs are a collection of expenses that have been grouped together. Appraisal expenses, company valuations, title fees, legal fees, and other charges are among them.

Late-Payment Fee for SBA Loans: You may be charged a fee ranging from 5% of the late payment to $100 (whichever is higher) if you make a late payment.

Prepayment penalty on SBA loans: If you pay off your loan early on a long-term SBA loan, you’ll usually be charged a prepayment penalty.