Understanding the SBA 7(a) Loan Fees: Both for Borrowers and Lenders
Whether borrowing or lending, understanding upfront about the SBA Loan Fees you will need to pay is a good idea.
Each year the SBA reviews certain loan fees payable to the SBA by participating lenders and Borrowers to determine if any fee amounts need to be adjusted to cover the subsidy costs of the loan program. Loans to Veterans are slightly different, and therefore separate notices are issued regarding the fees for loans made to Veterans.
SBA Loan Fees Paid By Borrowers
Entrepreneurs often need SBA loans to start or grow their small business. Small business owners often find the SBA loan fees associated with obtaining an SBA loan more attractive than the cost of other loan options. The SBA collects loan guaranty fees so entrepreneurs (and not the United States taxpayers) bear much of the cost of funding SBA’s financial assistance programs.
The SBA does have a Standard Operating Procedure that details SBA loan fees, which is used to determine the exact guarantee fee that will be due on a specific SBA-guaranteed loan. A percentage of the guaranteed portion is due within ninety days of the date of loan approval and may be financed with the proceeds of the SBA-guaranteed loan.
Here are a couple of examples:
- For a $150,000 loan, the SBA guaranty fee is $2,550 or 2% of the guaranteed portion (85%).
- For a $5,000,000 loan (75% SBA guaranty of $3,750,000), the loan fee is $138,125 calculated as 3.5% of the first $1 million guaranteed ($35,000) plus 3.75% of the remaining guaranteed amount.
If you are looking at applying for a loan, note that lenders cannot charge a separate loan origination fee on an SBA guaranteed loan. Lenders can, however, charge “packaging fees” but the fees must be reasonable and customary for the services actually performed as well as consistent with those SBA loan fees charged on the lender’s similarly-sized non-SBA guaranteed commercial loans.
SBA Loan Fees Paid By Lenders
SBA regulations state that 7(a) lenders will pay the SBA an annual service fee based on the guaranteed portion of the outstanding principal balance on all their 7(a) loans. Typically, when a 7(a) loan is submitted for guaranty purchase there is an unpaid amount owed for the ongoing service fee on the loan.
In order to expedite purchase processing and to eliminate the need for SBA to bill a lender for the unpaid loan fee amount, the fee will be calculated and automatically deducted through the Guaranty Purchase Tracking System (GPTS) from the purchase disbursement made to the Lender.
A secondary market was established by the SBA in the 1970s to provide greater liquidity to lenders and thereby expand the availability of commercial credit for small businesses. In a secondary market sale, the SBA’s conditional guaranty to a lender converts into an unconditional guaranty to an investor. With the exception of lines of credit or revolving loans, most 7(a) loans can be sold on the secondary market
If SBA purchases the guaranteed portion of a loan from the secondary market, the unpaid annual service fee will be deducted from any secondary market servicing fee owed the lender. If the unpaid annual fee exceeds the lender’s secondary market servicing fee, the lender will be billed for the difference.