SBA Loan Rates 2020

SBA loans offer the lowest rates on the market, but rates can change based on the Federal Reserve's actions.

NerdWalletApril 21, 2020

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For many small-business borrowers, government-backed loans are the holy grail. SBA loan interest rates are some of the most competitive among lenders.

Current SBA 7(a) loan interest rates

SBA loan size

7(a) loan paid off in under 7 years *

7(a) loan paid off in over 7 years *

$25,000 or less

7.50%

8.0%

$25,001 to $50,000

6.50%

7.0%

More than $50,000

5.50%

6.0%

*Rates calculated with the current prime rate of 3.25%. Updated September 2020.

Keeping up on the Small Business Administration’s terms and rates is part of a smart approach to finding a small-business loan. The 7(a) loan is the SBA’s most popular product and offers a flexible sum of cash for a variety of uses, including managing daily operations, purchasing new products and refinancing high-interest loans. Business borrowers also find low-cost financing for land and other major purchases with SBA 504 loans.

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How SBA loan rates are set

The SBA sets interest rate guidelines for lenders, which helps keep small-business owners' borrowing costs low. Interest rates for SBA 7(a) loans are the daily prime rate, which changes based on actions taken by the Federal Reserve, plus a lender spread. The spread is negotiated between the borrower and the lender, and can result in either fixed or variable interest rates. However, the SBA caps the maximum spread lenders can charge based on the size and maturity of the loan.

A lender providing an SBA loan may also calculate interest rates using the one-month London Interbank Offered Rate plus 3% or the SBA’s optional peg rate instead of the daily prime rate.

Here’s a breakdown of SBA business loan terms and rates, including interest and fees.

SBA 7(A) interest rates

7(A) LOANS REPAID IN LESS THAN 7 YEARS

Loan size

$25,000 or less

$25,001 - $50,000

More than $50,000

Maximum interest rate

*Prime + 4.25%

*Prime + 3.25%

*Prime + 2.25%

7(A) LOANS REPAID IN MORE THAN 7 YEARS

Loan size

$25,000 or less

$25,001 - $50,000

More than $50,000

Maximum interest rate

*Prime + 4.75%

*Prime + 3.75%

*Prime + 2.75%

*The current prime rate, as of March 2020, is 3.25%.

Remember that interest rates make up only part of your expenses. Your APR reflects your true cost of borrowing, including your interest rate and all fees associated with the loan.

SBA 7(A) loan terms

  • 7(a) loans do not have a minimum loan amount and max out at $5 million.

  • The SBA guarantees 85% of your loan if it’s less than $150,000 and 75% if it’s more than $150,000. However, it limits guarantees to $3.75 million.

  • SBA loans aren’t easy to qualify for. Learn the qualifications for SBA loans to make sure they’re right for you.

Guaranty fees

7(a) loan guaranty fees are based on the loan amount and maturity date and apply only to the guaranteed portion of the loan. Lenders are required to pay the SBA the guaranty fee, but some pass the expense on to you. However, the SBA limits the maximum amount you will be charged.

You'll pay no guaranty fee if your loan is less than $150,000. If it's more than $150,000 and matures in less than a year, you’ll see a 0.25% guaranty fee.

If your loan is for more than $150,000 and takes more than a year to mature, you’ll be charged based on a three-tier system:

  • 3% on loans of between $150,000 and $700,000.

  • 3.5% on loans of between $701,000 and $1 million.

  • 3.75% on loans of more than $1 million.

CDC/504 loans

Business borrowers looking to buy land, buildings or major equipment with long-term, fixed-rate financing can apply for SBA 504 loans. These loans are partially funded by certified development companies, nonprofit organizations focused on community economic development. The loans require collateral, typically the assets that are being financed, as well as personal guarantees from the principal borrowers.

CDC/504 SBA loan terms

  • 504 loans are available in 10- or 20-year terms.

  • Fee percentages are fixed but reset every five years based on principal, often resulting in a lower payment for the borrower.

  • The minimum loan amount is $50,000; the maximum is $5.5 million.

How 504 loan rates are set

Small-business owners seeking a 504 loan are on the hook for a down payment of at least 10% of the cost of the project. A traditional lender, such as a bank, puts up 50% of the loan, and a certified development company puts up as much as 40%. The SBA guarantees 100% of the CDC portion of the loan.

SBA 504 loan terms are primarily made up of the following:

  • The Treasury bond rate: Loans with 10-year terms are priced based on the five-year Treasury bond, while loans with 20-year terms are based on the 10-year Treasury bond.

  • A guaranty fee that is paid to the SBA.

  • A servicing fee that is paid to the CDC.

  • A fee paid to the central servicing agent.

When applying, you'll be quoted an effective interest rate, which is the sum of those three fees and the Treasury bond rate. However, you'll also pay a one-time fee of 2.15% to the SBA, as well as some additional fees, meaning your total cost of borrowing (or annual percentage rate) will be slightly higher than your effective rate.

The bottom line on SBA loan rates

SBA loans give you the best interest rates, though the application process can be complicated and time-consuming. If you find yourself in need of money fast, numerous online lenders can help you get the capital you need. However, they have less favorable APRs.

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