One key aspect that small business owners encounter when applying for Small Business Administration (SBA) loans is the SBA guarantee fee. This fee is a critical component of the loan process, yet it can cause confusion and questions among entrepreneurs. In this guide, we’ll explain everything you need to know about it, including its implications, to help you make informed financial decisions for your business.
What is the SBA guarantee fee?
Unlike origination fees that are usually charged on traditional business loans through banks, a guarantee fee is charged to cover the costs if a business defaults on a loan. Although guarantee fees are charged to lenders, they will typically pass guarantee fee costs on to borrowers. Borrowers will then be responsible for paying the guarantee fee.
The SBA guarantee fee is a fee that the Small Business Administration (SBA) charges on the guaranteed portions of SBA 504 and 7(a) loans, but not on SBA microloans. The SBA guarantees between 75% and 90% of each loan issued, meaning the guarantee fee does not apply to the total approved loan amount, but only to the guaranteed portion.
SBA guarantee fee costs.
SBA guarantee fees are based on the guaranteed amount on your SBA loan and your repayment term. It is important to note that guarantee fees change each fiscal year. The tables below reflect the SBA guarantee fees for the 2024 fiscal year (October 1, 2023, through September 30, 2024) per SBA loan type.
SBA 7(a) loan guarantee fees range from 0.00% up to 3.75%.
| Loan amount | SBA guarantee | SBA guarantee fee for loan terms 12 months or less | SBA guarantee fee for loan terms of more than 12 months |
| $1,000,000 or less | 75% of the loan | 0.0% | 0.0% |
| $1,000,001 to $2,000,000 | 75% of the loan | 0.25% | 1.45% of the guaranteed portion up to and including $1,000,000+1.70% of the guaranteed portion of any amount over $1,000,000 |
| $2,000,001 to $5,000,000 | 75% of the loan* | 0.25% | 3.50% of the guaranteed portion $1,000,000+3.75% of the guaranteed portion of any amount over $1,000,000 |
*The SBA guarantees a maximum of $3.75 million on 7(a) loans.
For the 504 loan program, the SBA establishes distinct guarantee fees each year. This program features a unique funding structure, involving contributions from the borrower, a Certified Development Company (CDC), and a third-party lender. SBA guarantee fees are applied solely to the CDC portion of the loan.
There is no guarantee fee on SBA 504 loans for the 2024 fiscal year. However, with this loan type, lenders can charge the SBA’s annual service fee (0.364% for the 2024 fiscal year) to borrowers.
How are SBA guarantee fees calculated?
Calculating the SBA guarantee fee can seem complex, but once understood, it becomes more manageable. Here is a simplified process:
- Identify the guaranteed portion: Determine the amount of the loan that the SBA guarantees. This typically ranges between 50%-90% of the entire loan, depending on the specific SBA loan program.
- Apply the fee structure: Using the fee rates provided by the SBA, which vary depending on the size and term of the loan, calculate the fee charged on the guaranteed portion.
- Total loan cost: Add up the fee amount and any additional associated loan costs to understand the total cost of the loan.
It’s critical to note the fee is based on the guaranteed portion of the loan, not the total loan amount, which implies that the actual amount paid can be less than the full percentage of the entire loan.
Reach out to your SBA lender for assistance if you are having difficulties calculating potential guarantee fees. You can also check out the SBA’s online calculator which could be helpful to you.
Are there additional SBA loan fees?
Beyond the guarantee fee, small business owners should be aware of other potential charges associated with an SBA loan. This includes origination fees, packaging fees, closing costs, and service fees. Some of these costs are paid upfront, while others may be annual or ongoing over the life of the loan.
It’s important to get a complete breakdown of all fees from your lender when considering an SBA loan, so there are no surprises later on. Being informed allows you to better compare your financing options and make the most financially sound decision for your business.
Conclusion
For small business owners accessing capital through SBA loan programs, understanding the SBA guarantee fee is fundamental. It’s just as important to plan for this expense as it is to forecast other business costs. Always make sure to assess the full picture of loan costs and discuss any fee-related questions with your SBA-approved lender.
With careful consideration, the SBA’s programs can be a powerful tool in growing and sustaining your business. Your efforts to comprehend the fee structures will position you to make well-informed financial decisions that keep your business’s bottom line healthy. Remember, staying informed about the costs of borrowing is essential in the stewardship of your enterprise.
FAQs
Most business loans will have associated fees, though these will differ by lender and loan type. Traditional loans tend to have various charges like origination fees, processing fees, and possibly early repayment penalties.
The borrower is responsible for paying the SBA guarantee fee. Typically, this fee is paid upfront and can sometimes be financed as a part of the loan.
If a borrower defaults on an SBA loan, the lender will follow standard collection procedures, which can include seizing collateral. The SBA will then cover the guaranteed portion after the lender has exhausted the collection process.
Eligible veteran-owned businesses may have their guarantee fees waived on SBA 7(a) Express loans, providing financial relief and supporting their entrepreneurial ventures. There is also no guarantee fee on all SBA 504 loans and SBA 7(a) loans that are $1,000,000 or less.
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Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.
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