What Are the Current SBA Loan Rates?

The SBA lender—in other words, the bank that’s actually funding the loan—and the small business applicant negotiate the actual interest rate for a 7(a) loan. However, the SBA sets maximum interest rates, and lenders can’t charge more than those designated rates.

As you’ll see, your SBA loan rate for the 7(a) loan will depend on the current U.S. Prime Rate. The Prime Rate is a market rate that goes up or down based on how the U.S. economy is doing. Banks use the prime rate as a benchmark for setting rates on consumer and commercial loans. As of November 2019, the prime rate is 4.75%.

Therefore, this means that maximum SBA loan rates for the 7(a) program currently range from 7% to 9.5%. Your lender might charge a lower rate than this, however, if you have excellent credit and business financials. Nevertheless, to participate in the SBA 7(a) loan program, your SBA lender can’t currently charge more than 9.5%.

Along these lines, it’s also important to note that although a lender can never charge more than the SBA-designated maximums, SBA loan rates can be fixed or variable.

If the interest rate is fixed, that means your monthly payment stays exactly the same during the entire term of the loan. Lenders typically charge fixed rates on large business loans.

On the other hand, if the interest rate is variable, the rate can go up or down based on how the U.S. economy is performing and how high interest rates are on other types of loans. A variable interest will be pegged to the Prime Rate or other benchmark rates. Loans under $50,000 tend to have variable interest rates so that they are more profitable for the lender.

All of this being said, along with the Prime Rate, the maximum SBA loan rates for the 7(a) program depend on the loan term and size:

The rates above do not account for fees that the SBA and lender might charge you. Those fees can increase the total annual cost, or annual percentage rate (APR), of your loan.

This being said, you’ll want to keep in mind that SBA loans have a guarantee fee based on the loan terms and amount. The lender initially pays the guarantee fee, but they usually pass that expense on to the borrower—that’s you—at closing.

The fees range from 2% of the guaranteed amount for loans of $150,000 and less, to 3.75% on any guaranteed amount over $1 million. For SBA loan terms of less than 12 months (which is very rare for SBA loans), lower guarantee fees will apply.

You should also remember that the lender might charge other fees too, such as application fees, credit check fees, appraisal fees, packaging fees, and closing fees. You’ll want to make sure to take these—along with SBA loan terms and amounts—into account when determining the total cost of your SBA 7(a) loan.

Although the SBA and your lender will base the repayment term length for your loan on your ability to repay, the purpose of the loan, and the useful life of the assets you’re financing, there are maximum timelines for SBA 7(a) loan terms:

• 25 years for real estate
• 10 years for equipment
• Seven years for working capital

As you can see, another benefit of SBA loans is the lengthy repayment terms that are associated with these products. Through the span of your SBA loan terms, you’ll repay with monthly payments of principal plus interest, like your standard term loan.

Moreover, it’s important to note that you’ll only face a prepayment penalty if your SBA 7(a) loan term is 15 years or more and you prepay during the first three years of the term—otherwise, there will be no prepayment penalty for paying your loan back early.

SBA 7(a) loans go up to $5 million, with no minimum amount. The average SBA 7(a) loan amount in the 2019 fiscal year was $446,487.

As we mentioned before, the best part of an SBA 7(a) loan is the versatility. You can use these loans for any of the following reasons:

• Purchase inventory, equipment, furniture, supplies, raw materials, land, buildings, fixtures, and more
• Cover operational expenses
• Meet your seasonal business needs
• Cover the upfront costs of construction or other contract work
• Set up, buy, expand, or begin operating a business
• Refinance your current debt (in some situations)

Although we’ve been generally discussing the SBA 7(a) loan program as a whole, there are smaller subprograms within the overarching category of 7(a) loans.

One of these subprograms is the SBA Express Loan program. The Express Loan is for loan amounts up to $350,000. These loans have a faster, expedited application and approval process along with shorter terms. It’s worth noting that the interest rates on SBA Express Loans are higher than the rates on traditional 7(a) loans, with rates ranging from the Prime Rate + 4.5% to 6.5%.

The CDC/504 loan program is actually made up of two different loans. One comes from a bank, which funds about 50% of your financing, and the other comes from a nonprofit certified development corporation (CDC), which funds about 40% (the other 10% will come from you, as an SBA loan down payment).

Every month, the CDC submits closed loans to the SBA, which pools all the loans together and sells them to investors. The investors provide the capital that actually funds the loans.

This being said, the rates on the CDC portion of the loan are subject to SBA rules. Under those rules, the interest rates on the CDC loan are based on the current rate for five-year and 10-year U.S. Treasury bonds. To calculate those rates, you must add a spread for investor returns, as well as fees that the CDC and SBA charge.

The calculations for these markups can get complicated, so a good shortcut is to take current U.S. Treasury bill rates and add a spread of 1.5% to 5.125% (which covers various CDC and SBA fees) to get your approximate interest rate.

The rates on the CDC portion of SBA 504 loans are currently as follows:

• 10-Year SBA Loan Term: five-year Treasury rate + 2% to 4.322% in fees
• 20-Year and 25-Year SBA Loan Term: 10-year Treasury rate + 2% to 4.322% in fees

As of November 2019, the five-year Treasury rate is 1.63%, and the 10-year Treasury rate is 1.79%. This brings the current SBA CDC/504 loan rates between approximately 3.63% and 6.112%.

These are fixed rates, so your payment never changes for the entire length of the SBA loan term on the CDC portion of the loan.

You and the bank will negotiate interest rates on the bank portion of the loan. The SBA doesn’t have any say over these rates, although they usually fall under 10%.

Just like SBA 7(a) loans, 504/CDC loans also come with fees. Both the SBA and the CDC can charge fees. Here are the main fees to look out for:

• Annual SBA fixed service fee – Currently 0.3205% ongoing
• CDC servicing fee – 0.625% ongoing
• Central servicing agent fee – No more than 0.1 % ongoing
• Third-party lender participation fee – 0.5% one-time
• Guarantee fee – 0.5% ongoing

Along with these fees, you can expect additional closing costs and fees from both the SBA, the CDC, and the bank (on the bank portion of the loan). You’ll want to make sure you understand all of these fees and determine how they contribute to the overall cost of your SBA loan.

Like the 7(a) program, the CDC/504 loan program matches their low-interest rates with an equally ideal loan term: You can expect to pay this financing back over the course of 10 to 25 years, on a monthly schedule.

As we mentioned above, CDC/504 loans are designed specifically to fund the purchase of fixed assets. This being said, you can use one of these SBA loans for any of the following growth initiatives:

• Buying land, including buildings
• Improving land, including making street improvements, adding utilities, building parking lots, or landscaping
• Renovating, converting, modernizing, or building new structures for your business
• Purchasing large, long-term equipment and machinery
• Upgrading machinery and equipment

Compared to the 7(a) loan program, you can’t use your CDC/504 proceeds for nearly as many purposes—but the CDC/504 loans tend to have larger amounts, longer terms, and even lower interest rates.

With this in mind, the SBA takes a backseat on microloan interest rates compared to other loan programs. The SBA only limits the markup that intermediaries can charge over their own cost of funds to borrow money from the SBA.

Here are the interest rate limits on SBA microloans:

• SBA microloans less than or equal to $10,000: Cost of funds + 8.5%
• SBA microloans over $10,000: Cost of funds + 7.75%

Subject to these limits, you’ll negotiate your interest rate with the intermediary lender, with little involvement from the SBA. The SBA loan rates for microloans typically vary between 6.5% to 13%. The average SBA loan rate for microloans in the 2019 fiscal year was 7.5%.

This being said, the intermediary’s own cost of funds will go up or down based on a variety of macroeconomic factors and how the economy is doing. Your creditworthiness and business financials will also affect the interest rate on your SBA microloan.

The SBA doesn’t charge any fees on microloans. However, intermediaries can charge application and origination fees up to 2% of the loan amount. They can also charge out-of-pocket closing costs, such as appraisal and credit check fees. Lenders can roll these fees into the loan, so the borrower can pay them over the course of the loan.

Like any of the loans we’ve discussed thus far, it’s important to understand what fees you’ll face with an SBA microloan and factor them into the total cost of your loan.

Terms for the microloan program will depend on your loan amount, funding use, lender-specific requirements, and the particular needs of your small business. The maximum loan term for the SBA microloan program is six years.

SBA microloan amounts range from as little as $500 to as much as $50,000. You can use these as working capital loans as well as to pay for inventory, supplies, furniture, equipment, and more.

This being said, however, you can’t use microloans to pay off your existing debts or to purchase real estate.

Credit scores measure how “reliable” you are as a borrower—or, in other words, how likely you are to pay back the debts you take on. Many factors go into figuring out your credit score—like your debt obligations, history of late payments, diversity of credit accounts, average age of accounts, and more—so that lenders can use the score as easy shorthand for your trustworthiness.

In addition, the SBA is spending tax dollars to guarantee loans, so they hold the small businesses receiving SBA financing to a high standard. Although there’s no real SBA loan credit score minimum, you’ll get the best SBA loan rates if your credit score is above 700. You’ll want to check your personal and business credit score to get an idea of what SBA loan rates you could qualify for.

Moreover, it’s worth noting that for 7(a) loans, the SBA also takes a look at your FICO SBSS score, also known as your liquid credit score.

Having a record of strong business revenue or achieving profitability will go a long way toward helping you qualify for SBA financing (and the best SBA loan rates). But, your business might not be at a revenue-producing stage yet.

If you’re still at the idea or concept stage, you might still be able to qualify for an SBA loan, but you’ll need to have a well-prepared business plan. All SBA loan applicants should put a business plan together, but this is especially important for owners of newer businesses.

Without a financial history, your business plan is one of the few pieces of information the lender has to evaluate your application. In your business plan, you should include revenue and profit projections.

Although collateral isn’t essential for every SBA loan program, most SBA lenders require an adequate amount of collateral to protect their interests. Plus, offering up collateral will make you more eligible for lower SBA loan rates and longer terms.

Collateral can be a business asset like equipment, machinery, or inventory. Collateral can also be a personal asset like your car or personal bank account. Many business owners submit a mix of business and personal assets as collateral. The more collateral you have to support your loan, the lower the risk for the lender. Therefore, the lender will feel more comfortable loaning money to you and offering you a low-interest SBA loan rate.