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SBA 7(a) loans are guaranteed by the Small Business Administration for up to 75% to 85% of the loan amount. Because the SBA backs these loans, the agency charges a fee on the guaranteed portion. This fee is charged to the lender, but the lender has the option of passing it onto the borrower, and most lenders do.
What Are SBA Guarantee Fees?
When you get an SBA loan, you will approach a bank or lender to make an application, and your bank will send this information to the Small Business Administration. Contrary to what you may have heard, the SBA generally does not make loans itself. Instead, the SBA will back a portion of the loan that the bank makes to you, guaranteeing up to 75% to 85% of all 7(a) loans. The SBA guarantees up to 85% of loans of $150,000 or less and up to 75% of loans over $150,000. Only 7(a) loans are subject to guarantee fees (other SBA loan programs have different fees).
What this means is that if you can’t pay back the loan, the SBA certifies to the bank or lender that they will cover a portion of the lender’s losses. For instance, if you take out a $100,000 SBA 7(a) loan and the SBA backs 85% of this loan, this means that the SBA will cover your bank’s losses up to $85,000. Because the SBA is taking on this risk, the administration charges a guarantee fee to your lender. Your lender has the option of passing this fee onto you, and most lenders do. The guarantee fee will be included in your loan, like an origination fee. This means that it will be deducted from the loan funds before they are disbursed to you.
This fee is assessed on the guaranteed portion of the loan, not the total loan amount. The SBA guarantee fee is determined by two factors: the loan amount and the repayment term of the loan.
- For loans of $150,000 or less, there is no guarantee fee.
- For $150,000+ loans with terms of one year or less, the fee is 0.25%.
- For $150,000+ loans with terms greater than one year, the fee ranges from 3.00% to 3.75%.
For example, if you take out a $400,000 five-year loan, the fee is 3% and the guarantee would be 75%. The fee would 3% of the $300,000 guaranteed by the SBA, or $9,000.
SBA 7(a) Guarantee Fees
The table below lists the guarantee fees for all loan amounts and repayment terms. These fees are based on the loan amount and the repayment term, with the actual fee being assessed on the guaranteed portion of the loan.
|Loan Amount||Guarantee Amount||Repayment Term of 1 Year or Less||Repayment Term Greater Than 1 Year|
|$150,000 or less||85%||0.00%||0.00%|
|$150,001 - $700,000||75%||0.25%||3.00%|
|$700,001 - $1 million||75%||0.25%||3.50%|
|$1 million - $5 million||75%*||0.25%||3.50% of guaranteed portion up to $1 million plus 3.75% of guaranteed portion over $1 million|
*The maximum amount the SBA will guarantee is $3.75 million.
Example 7(a) Guarantee Fees
In the table below, we take a look at some examples of guarantee fees for different 7(a) loans based on the loan amount and the repayment term.
|Loan Amount||Repayment Term||Guaranteed Amount||Guarantee Fee||Actual Guarantee Fee|
|$100,000||3 years||85%: $85,000||0.00%||$0|
|$170,000||1 year||75%: $127,500||0.25%||$319|
|$170,000||5 years||75%: $127,500||3.00%||$3,825|
|$800,000||10 years||75%: $600,000||3.50%||$21,000|
|$2.5 million||10 years||75%: $1.875 million||3.50% on first $1 million ($35,000)
3.75% on additional $875,000 ($32,813)
|$5 million||10 years||75%: $3.75 million||3.50% on first $1 million ($35,000)
3.75% on additional $2.75 million ($103,125)