SBA Guarantee Fee: An Overview and Cost Breakdown
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What is the SBA guarantee fee?
Business lenders pay guarantee fees for loans they issue that are guaranteed under the SBA loan program. SBA guarantee fees are typically passed from the lender to the borrower and range from 0.25% to 3.75% of the guaranteed portion of the loan.
Some lenders may roll the SBA guarantee fee into the total cost of the loan, allowing you to repay it as part of your monthly payment. Other lenders may deduct the fee from your loan proceeds before funding.
SBA guarantee fees are assessed for 7(a) and 504 loans but not for SBA microloans. Guarantee fees help cover the U.S. Small Business Administration’s costs if a borrower defaults on a loan.
There is no difference between “guarantee” and “guaranty.” Although the former is more commonly used, the SBA sometimes uses the “guaranty” spelling in official documents.
How much are SBA guarantee fees?
The SBA evaluates and announces the cost of guarantee fees every fiscal year. For the 2023 fiscal year, which began Oct. 1, guarantee fees for 7(a) loans are:
Loan amount | SBA guarantee | Guaranteed loan amount | SBA guarantee fee if loan term is 12 months or less | SBA guarantee fee if loan term is more than 12 months |
|---|---|---|---|---|
$150,000 or less | 85% of the loan. | $127,500. | 0.0%. | 0.0%. |
$150,001 to $500,000 | 75% of the loan. | $112,500.75 to $375,000. | 0.0%. | 0.0%. |
$500,001 to $700,000 | 75% of the loan. | $375,000.75 to $525,000. | 0.25%. | 0.55%. |
$700,001 to $1,000,000 | 75% of the loan. | $525,000.75 to $750,000. | 0.25%. | 1.05%. |
$1,000,001 to $5,000,000 | 75% of the loan.* | $750,000.75 to $3,750,000. | 0.25%. | 3.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000. |
*The maximum amount the SBA guarantees on a 7(a) loan is $3.75 million.
The SBA also sets specific guarantee fees for the 504 loan program. 504 loans consist of funding from the borrower, a third-party lender and a Certified Development Company, or CDC. Guarantee fees are assessed on only the CDC portion of the 504 loan.
For the 2023 fiscal year, the fee is 0.0%; in other words, there is no fee. Unlike with 7(a) loans, the lender can charge the SBA’s annual service fee to the borrower. This fee is currently 0.4405% of the outstanding balance of the loan.
Veteran-owned businesses can qualify to waive the guarantee fees on SBA Express loans.
How are SBA guarantee fees calculated?
SBA guarantee fees are calculated based on the guaranteed amount of the loan as opposed to the total loan amount.
For example, if the SBA guarantees 75% of a $600,000 loan, it will cover a maximum of $450,000 if the borrower defaults. The guarantee fee is then calculated using the guaranteed amount.
Based on the SBA’s current fee structure, the fee on this loan would be 0.25% if the repayment term is 12 months or less — and 0.55% if the term is longer than 12 months.
The cost, therefore, is $1,125 or $2,475 (depending on the term).
If you’re having trouble calculating potential guarantee fees, you can reach out to your SBA lender for assistance. The SBA also provides an online calculator that may help.
Other SBA loan fees
The guarantee fee is one of several SBA loan fees you may have to pay. You could 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 you may have to pay for an SBA loan, broken down by the type of loan.
SBA 7(a) loan fees
Type of fee | Cost | Overview |
|---|---|---|
Packaging fee | $3,000 for a loan up to $350,000 and no more than $5,000 for a loan over $350,000. | 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. |
Prepayment fee | 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 applies only to 7(a) loans with a term of 15 years or longer. |
SBA 504 loan fees
Type of fee | Cost | Overview |
|---|---|---|
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 | 0.4405% 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. |
Learn more about getting an SBA loan
Find out whether your business can qualify for an SBA loan.
Here are the differences between 7(a) and 504 loans.
Learn how long it takes to apply for an SBA loan and receive funds.
This article originally appeared on Fundera, a subsidiary of NerdWallet.
