SBA Guarantee fee: Overview and cost

Key takeaways

• The SBA backs a set percentage of SBA loans, so they charge lenders a guarantee fee in case a borrower defaults.
• A lender may roll the guarantee fee into the total loan amount or deduct it from the approved amount before funding.
• The SBA sets guarantee fees every fiscal year based on the loan amount.

The Small Business Administration (SBA) backs some of the most competitive business loans on the market. However, rather than issue loans directly to businesses, the SBA guarantees a portion of each SBA loan and works with outside lenders.

Like any loan, there are fees with SBA loans. The primary one most borrowers will need to consider is the guarantee fee. They range from 0.00 percent to 3.75 percent of the guaranteed portion of the loan. The cost can vary widely based on your loan amount and repayment term. However, some loans have no guarantee fee, or the guarantee fee can be waived.

What is an SBA guarantee fee?

Unlike an origination fee on traditional bank business loans, a guarantee fee is charged to cover the costs if a business defaults on a loan. Although lenders are technically responsible for paying the guarantee fee, they often pass the cost on to borrowers. This means you will be responsible for paying it, whether it is wrapped into the total cost of your loan or deducted from the funds your business receives.

The SBA assesses a guarantee fee on loans under the 7(a) and 504 programs — but not on SBA microloans. The fee is only charged for the guaranteed portion of your loan. Since the SBA only guarantees 75 percent to 90 percent of each loan, your business won’t pay a guarantee fee on the full amount you are approved to borrow.

SBA guarantee fee costs

Your business will pay a guarantee fee based on the loan amount guaranteed by the SBA and your repayment term. It changes each fiscal year. The table below reflects the 2024 fiscal year from October 1, 2023, through September 30, 2024.

The guarantee fee for SBA 7(a) loans ranges from 0.00 percent up to 3.75 percent.

In practice, the guarantee fee on a loan of $1,000,001, with 75 percent guaranteed, would be $1,875 for terms of 12 months or fewer and $10,875.01 for terms greater than 12 months.

There are no guarantee fees for 504 loans issued during the 2024 fiscal year; however, the annual service fee is 0.364 percent of the loan’s outstanding balance. For 504 Debt Refinance without Expansion Program loans, the annual service fee is 0.389 percent. Additionally, veteran-owned businesses can have their guarantee fee waived for Express loans under the 7(a) program.

For Export Working Capital Program (EWCP) loans, the upfront fees are below:

The SBA weekly lending report revealed the SBA approved 2,850 veteran-owned businesses for over $1.1 billion in 7(a) and 504 loans for the 2023 fiscal year.

Do SBA loans have other fees?

A lender — or brokerage company — may have lending fees on top of the guarantee fee, but the SBA limits how much you can be charged.

• Packaging fee. Your lender or a broker may charge you a packaging fee if it organizes your loan documents on your behalf. While it may increase your business’s chance of approval, the fee could be thousands of dollars.
• Service fee. Your lender may also charge a service or servicing fee for the cost of processing and maintaining your loan. The cost of this varies but is usually assessed as a percent of your total loan amount.
• Late payment fee. The SBA allows lenders to charge a late payment fee of 5 percent of the late payment amount if the payment is more than 10 days late.
• Prepayment fee. Prepayment penalties range from 1 to 5 percent of the prepayment amount. This fee is only charged if your business pays 25 percent or more of the outstanding balance within the first three years of the loan.

There may be additional fees for 504 loans to cover the servicing cost of the Community Development Company (CDC) your business works with.

Bankrate insight

Before finalizing any business loan, you want to ensure you can afford it. Thoroughly review your loan agreement and use a business loan calculator to properly assess repayment terms, interest rates and monthly payments.

Prohibited fees

There are also fees lenders cannot charge. According to the SBA, these include:

• Processing fees
• Origination fees
• Application fees
• Brokerage fees
• Commitment fees, with the exception of the Export Working Capital loan program

There is an annual service fee that 7(a) lenders must pay based on the gross loan approval amount. For loans under $1 million, it is 0.00 percent; for loans of $1 million to $5 million, it’s 0.55 percent of the guaranteed portion of the outstanding loan balance. Lenders are not allowed to charge the borrower these fees.

The bottom line

The guarantee fee will be your main cost beyond interest rates when you borrow an SBA loan. During the 2024 fiscal year, smaller 7(a) loans and all 504 loans have minimal fees, which could make it worthwhile to apply.

However, the application and approval process is extremely competitive. Your business must exhaust other business loans and meet the SBA’s strict eligibility criteria to apply.

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