SBA Guarantee Fee: How Much Will It Cost You?

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What Is the SBA Guarantee Fee?

The SBA guarantee fee is a fee that the SBA charges lenders on the government-guaranteed portion of SBA loans. Lenders usually pass on this fee to the borrower. The amount of the guarantee fee depends on the type of business loan, loan amount, and loan term. The fee is typically deducted from the loan proceeds prior to funding.

An SBA guarantee fee is assessed on both SBA 7(a) loans and SBA 504 loans. The fee is designed to cover the government’s costs in case a borrower defaults and the SBA has to compensate the lender. In this guide, we’ll explain everything you need to know about the SBA guarantee fee if you’re in the market for an SBA loan.

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How Much Are SBA Guarantee Fees?

For SBA 7(a) loans, which is the Small Business Administration’s (SBA) most popular loan program, the SBA guarantee fee ranges from 2% to 3.75% of the guaranteed amount of the loan

In other words, the fee isn’t assessed on the total loan amount, but rather on the portion of the loan that the SBA guarantees. The SBA only promises to back a certain percentage of the loan in the event that the borrower defaults. For example, the SBA guarantees a maximum of 85% on a $100,000 loan, which means the lender will receive a maximum of $85,000 from the SBA if the borrower defaults on the loan. The guarantee fee will be assessed on the $85,000.

Here are the current SBA guarantee fees for 7(a) loans:

 

Loan Amount SBA Guarantee SBA Guarantee Fee if Loan Term > 1 Year  SBA Guarantee Fee if Loan Term ≤ 1 Year 
$150,000 or less
85% of the loan 
2% of guaranteed portion
0.25% of guaranteed portion
$150,001 to $700,000
75% of the loan
3% of guaranteed portion
0.25% of guaranteed portion
$700,001 to $1 million
75% of the loan
3.5% of guaranteed portion
0.25% of guaranteed portion
$1,000,001 to $5 million
75% of the loan*
3.5% of guaranteed portion up to $1 million, plus 3.75% of guaranteed portion over $1 million
0.25% of guaranteed portion

*The maximum amount the SBA guarantees on a 7(a) loan is $3.75 million.

The SBA 504 loan program is a separate SBA loan program for real estate and equipment financing, and carries its own set of fees. For SBA 504 loans, the guarantee fee is currently 0.5% of the loan amount. SBA 504 loans involve both a bank and an SBA-approved Certified Development Company (CDC). The guarantee fee is assessed only on the CDC portion of the 504 loan.

SBA Guarantee Fee Examples

It can be difficult to understand how the SBA guarantee fee works in practice since it applies only to the guaranteed amount of the loan. 

Here are a few examples of how the guarantee fee is calculated on 7(a) loans:

  • For a $100,000 loan, the SBA will guarantee 85% of the loan, or $85,000. The SBA guarantee fee is 2% of $85,000, or $1,700.
  • For a $500,000 loan, the SBA will guarantee 75% of the loan, or $375,000. The SBA guarantee fee is 3% of $375,000, or $11,250.
  • For a $1 million loan, the SBA will guarantee 75% of the loan, or $750,000. The SBA guarantee fee is 3.5% of $750,000, or $26,250.
  • For a $5 million loan, the SBA will guarantee 75% of the loan, or $3.75 million. The guarantee fee is 3.5% of the first $1 million that is guaranteed, plus 3.75% of the remaining $2.75 million that is guaranteed. That brings the total SBA guarantee fee to $138,125.

 

As these examples show, the higher your loan amount, the higher your SBA guarantee fee will be. The fee can be substantial once the loan exceeds a certain size. 

Other SBA Loan Fees

The guarantee fee is just one of several SBA loan fees that you might have to pay. You might be charged other fees by the SBA, the bank, or the CDC (for 504 loans). The SBA sets limits on what fees borrowers can be charged, and how much those fees can be.

Here are some fees that you can expect to pay on SBA loans, broken down by the type of 

loan.

SBA 7(a) Loan Fees

Type of Fee Amount of Fee What It Is
Packaging fee
No more than 3% for loans of $50,000 or less; no more than 2% for larger loans (additional 0.25% allowed for loan amounts over $1 million)
Fee charged by a lender or broker for putting together your loan application.
Extraordinary servicing fee
No more than 2% per year on the outstanding loan balance
Fee charged by the lender for monitoring the value of collateral or for other special servicing needs.
Out-of-pocket expense fee
Varies
Fee charged by the lender for appraising collateral, assessing environmental costs, and other closing costs.
Late payment fee
No more than 5% of the payment amount
Fee charged by the lender when the borrower misses a scheduled loan payment by more than 10 days.
5% of the prepayment amount during the first year, 3% the second year, and 1% the third year.
Penalty that the SBA charges when a borrower pays 25% or more of the loan in any one year during the first three years after disbursement. This fee only applies to 7(a) loans with a term of 15 years or longer.

SBA 504 Loan Fees

Type of Fee Amount of Fee What It Is
Packaging fee
No more than 1.5% on the CDC portion of the loan
Fee charged by the CDC for processing your loan application.
Closing fee
Varies
Fee charged by the CDC to reimburse itself for appraisals, legal work, and other miscellaneous closing costs.
Annual servicing fee
0.3205% of the outstanding loan balance
Annual fee charged by the CDC to cover ongoing overhead costs associated with your loan.
Late payment fee
5% of the late payment or $100, whichever is greater
Fee charged by the CDC when a borrower makes a loan payment after the 15th of the month.
Underwriter’s fee
0.375% on 10-year loans; 0.4% on 20- and 25-year loans
Fee charged by the CDC or their agent for evaluating  your loan application.
Prepayment fee
The prepayment penalty is based on the principal balance of the loan multiplied by the interest rate. The penalty declines by 1/10th of the interest rate annually for the first 10 years.
Fee charged by the CDC when a borrower pays off their loan early.

Keep in mind that we’ve only listed the fees that borrowers have to pay. The SBA also charges additional fees to lenders, such as an annual service fee, that can’t be passed on to borrowers. 

SBA Guarantee Fee Frequently Asked Questions

SBA Guarantee Fee: The Bottom Line

The SBA guarantee fee will add to the total cost of your business loan, so it’s important to be aware of the fee before signing your loan agreement. And although the SBA guarantee fee is probably the largest fee, other fees can also add to your overall borrowing cost. If you know the fees in advance, you will feel more confident in securing an SBA loan for your small business.

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Senior Contributing Writer at Fundera

Priyanka Prakash, JD

Priyanka Prakash is a senior contributing writer at Fundera.

Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.

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