The ‘Hidden’ Costs of SBA 7(a) Loans
It’s essential you know exactly what you need to pay for one of the strongest small business financing options out there.
When I was in my early 20s, I moved to Prague (in the Czech Republic, not the town in Oklahoma).
Wait a second. You’re wondering what this has to do with SBA financing.
(It’s definitely related, I promise. Stay with me. Just for a minute. We'll get through it.)
So, it’s my first full day in the city, and I’m out enjoying a sunny afternoon in Prague.
I stop for lunch at a nice-looking restaurant in one of the city’s main squares. (For the curious, it was this exact spot.)
I devour some hearty goulash, down a glass of ice-cold Krušovice beer, and summon the waiter to settle the bill.
He ambles over, sets a piece of paper down in front of me, and heads off while I reach for my wallet.
On the paper slip, I read the bill (with a little help from Google Translate):
One basket of bread
A table service charge
Okay. Check, check, then…wait, what’s all this? (Still with me? Here we go.)
No matter if you’re lunching in Bohemia or taking a loan to grow your small business (told you it’s related!), hidden charges can sour your experience — and totally throw your budget out of whack.
Hidden Fees for SBA 7(a) Loans
Like my fateful lunch, SBA loans have fees that come as part of the package. While these aren’t hidden outright, some of them can be less visible. To avoid confusion and have a good understanding of your loan, it pays to know what these fees are.
Note: Not all of these fees apply to every situation and every loan.
Simply put, the guaranty fee is a charge set by the SBA, often passed onto borrowers by lenders. The reason behind this fee lies in the assurance the SBA provides to lenders: By guaranteeing a significant portion of the loan, the SBA shoulders some of the risk. This gesture makes lenders more inclined to approve larger loan amounts or greenlight loans that might otherwise seem a little bit risky.
Guaranty fees follow a schedule, depending on the length of the loan term and the loan amount. For loans with terms of more than a year, the fee breakdown is on the table below, effective October 1, 2023:
Upfront fee (% of guaranteed portion)
$1 million or less
$1 million to $2 million
1.45% of the portion up to $1 million, plus 1.7% of anything above $1 million
More than $2 million
3.5% of the portion up to $1 million, plus 3.75% of anything above $1 million
For shorter-term loans of less than a year, there’s no guaranty fee for amounts under $1 million, and 0.25% of the guaranteed part of a loan above that.
You’ll be assessed a fee if you pay off a longer-term SBA loan well ahead of schedule. Prepayment fees are only attached to SBA 7(a) loans with terms of 15 years or more, and they only apply when you pay down 25% or more of your balance within three years of the loan being disbursed. The step-down schedule is below:
Percent of Prepayment Amount
Note that if you pay a big chunk (or all) of your loan off in year four, there’s no penalty.
This isn’t any single fee, but rather a combination. Depending on what you’re using your SBA loan for, some of these won’t apply to you.
Appraisal fees (for real estate or heavy equipment)
Environmental report costs (for real estate)
There’s no good way to give you an estimation of these fees in advance. They vary greatly and depend on your location, the nature of your business, and even the complexity of your loan package.
And note that just because these are considered “closing” costs doesn’t mean they’re payable only if the loan closes. If you need an environmental report, rest assured that you’ll be charged for it once the report is ready. Same goes for appraisals.
My recommendation is to project these costs out as soon as you bring in assistance. This way you can avoid any nasty surprises.
Now we’ll get into the weeds a bit. Many of these costs will not apply to your SBA 7(a) loan, but it’s helpful to cover them.
When in doubt, ask your lender for clarification. It’s much better to be surprised by what’s on the menu than what’s on the bill.
It happens, I know. It’s great to set a calendar reminder just to ensure you don’t miss a loan payment. If you do miss one? Expect a fee of no more than 5% of your regular monthly payment if you’ve passed your grace period.
This isn’t going to be applicable to every lender you might work with, so it’s good to establish up front if reporting fees are part of your loan package. These fees are often charged to cover a lender’s administrative efforts in getting detailed financial or operational overviews of your business.
Renewal fees are most commonly seen on revolving lines of credit. Not every lender will assess a fee, but some do if you wish to renew after the initial term expires. These fees are used to cover the costs associated with checking into the financial stability and creditworthiness of your small business.
No matter what, you’ll need to ask your lender which fees are applicable to your situation. Each lender operates differently, and it’s important to clearly understand what charges lie ahead.
Meanwhile, in Prague…
So back in Prague, I’m still sitting there, staring at the bill. I know I haven’t eaten any bread, and a 20% table charge seems a bit extreme.
I flag down the waiter again. I tell him that I didn’t eat any bread, and I ask about the 20% service charge.
He just tells me that it’s totally normal, and I have to pay for it. The bread fee is for all customers, and I could’ve just asked for bread if I’d wanted any (if only that’d been the point). As for the service charge, that’s just a standard practice in the area.
Just like that, my wallet gets a little bit lighter.
It can work a bit like that with your lender, too, if you go in with eyes wide shut. Just because you don’t know or ask about fees doesn’t mean you’re not responsible for them.
My advice? Talk to our team about your small business’s financing needs. We’ll let you know exactly what fees are involved (regardless of the lender you go with) and how to ensure you’re getting the right loan for your business.