SBA 7a Loan Fees
The Small Business Administration announced new SBA loan fees for SBA 7a Loans in September of 2023.
There are no upfront SBA 7a loan fees (SBA Loan Guaranty Fees) on loans up to $1 million through the end of September 2024 and the fees for loans between $1 million and $2 million are reduced.
There is no change for loans of more than $2 million.
For loans of longer than 1 year, the fees are:
- For 7a Loans of less than $1,000,000: no fee through Sept of 2024
- For loans of $1,000,001 to $2,000,000: : 1.45% of the guaranteed portion of the loan up to and including $1,000,000, plus 1.70% of the guaranteed portion of the loan over $1,000,000.
- For loans of $2,000,001 or more: 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% of the guaranteed portion over $1,000,000
The small business administration does not make 7a loans directly, they guarantee a percentage of each loan for lenders who participate in the program, so the “guaranteed portion” referenced above is the amount of the loan that the SBA guarantees for the lender.
You can think of the guaranteed portion as like a mortgage insurance policy for the lender and the amount that is “insured”can differ depending on the type of 7a loan. For most SBA 7a loans, this amount is 75%, but there are exceptions.
For example, some types of “export loans” for businesses that export (or intend to export and can provide a solid plan for doing so) get a 90% guarantee. This is because the Federal government is trying to encourage small businesses to sell their products (or services) overseas.
Below are examples of how SBA Loan Fees are calculated for loans of $1 million, $1.5 million and $3.5 million, respectively. This assumes a “regular” 7a loan and not an export loan (which has a higher guaranty):
$1 million loan/75% guaranty:
$0 – there is NO guaranty fee
$1.5 million loan/75% guaranty:
$1,000,000 x 75% = $750,000 x 1.45% = $10,875.00
plus 1.7% of the guaranteed portion over $500,000
$500,000 x 75% = $375,000 x 1.7% = $6,375.00
For a total of:
$17,250.00 or approximately 1.2% which is a significant discount vs. what it was previously as the previuos calcuation equated to approx 2.75% as a percentage.
$3.5 million loan/75% guaranty:
This is a 3 step calculation.
- $1 million x 75% = $750,000
$750,000 x 3.5% = $26,250 on the first $1 million - $2.5 million x 75% = $1,875,000
$1,875,000 x 3.75% = $70,312 on the balance of the loan - $26,250 + $70,312 = $96,562 SBA Loan Fee on $3.5 million loan
An easier way to approximate the SBA loan fee for loans over $2 million is to just multiply the loan amount x 2.75%. It will not be exact, but it will be very close.
So as you can see, the SBA loan fees are still expensive for loans greater than $2 million, but are now a relative bargain for smaller loan amounts.
Keep in mind, however, that unlike traditional bank financing, there are rarely any origination fees for most SBA 7a loans and almost all closing costs can be financed into the loan, so between the flexible use of proceeds, the possibility of no down payment, flexible underwriting and credit standards and the possibility of getting long term fixed rates, the SBA 7a can be an exceptional value.
In fact, some lenders will offer an SBA loan with no down payment for a business property loan – and in some cases for a business purchase – even for the purchase of an online business – and still finance the loan fee and all other costs into the loan regardless of the loan to value.
Feel free to get in touch if you have any questions: jking (at) green commercial capital (dot) com