Understanding the SBA 7(a) Loan Fees: Both for Borrowers and Lenders
It's essential that you understand what fees you could encounter with an SBA 7(a) loan.
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 90 days of the date of loan approval and may be financed with the proceeds of the SBA-guaranteed loan.
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.
To learn more about the SBA 7(a) loan program or to get a free quote, simply click the button below!
How can I calculate the total cost of an SBA 7(a) loan?
You can calculate the total cost of an SBA 7(a) loan using our free loan quote calculator. The calculator will determine your monthly payment and amortization schedule based on the total amount that you’re borrowing, the interest rate that you agreed upon for your loan, and the term of your loan. In addition to showing you your monthly payment, the calculator will also break down for you how much of each payment will go toward principal and interest, and how your balance will change with each payment.
What are the benefits of an SBA 7(a) loan for small businesses?
The SBA 7(a) loan program offers small businesses a variety of benefits, including:
- Flexibility in underwriting
- Often has lower interest rates than other comparable financing options
- Long loan terms, up to 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory
- Flexible collateral requirements
- Lenders are prohibited from charging certain fees, including:
- Insurance service fees
- Add-on interest charges
- Legal service fees (with some exceptions)
- Broker referral fees