Making Sense of the SBA Guarantee Fee

A  Small Business Administration (SBA) loan is generally regarded as one of the better options for financing for small businesses. SBA loans are government-guaranteed loans with longer terms and lower rates, giving you financial freedom and flexibility. But navigating the complexities of the SBA loan and its guarantee fees may feel overwhelming. We’re here to help you make better sense of it all.  

What is the SBA loan guarantee fee?

The SBA loan guarantee fee is a fee charged by the Small Business Administration to borrowers who take out loans through SBA-backed programs. The purpose of this fee is to cover the government’s cost when a borrower defaults on a loan, offsetting some of the costs associated with administering the loan guarantee programs and helping maintain the sustainability of these funding options. 

The SBA charges lenders with an SBA guarantee fee. Lenders then pass these costs onto the borrowers in the form of upfront fees. 

Fee structure and payment

The amount and structure of the guarantee fee may vary based on the specific SBA loan program, the loan amount, and the term of the loan. 

When the SBA backs a loan, they often guarantee anywhere between 75% to 85% of the loan. The SBA determines the guarantee fee, typically ranging from 2% to 3.75%. Generally, the fee is a percentage of the guaranteed portion of the loan. 

The fee is typically added to the loan amount and repaid over the term of the loan, rather than paying it upfront in cash. 

Waivers and discounts

In certain circumstances, the SBA may offer fee waivers or discounts. For example, through the Office of Veterans Business Development, some loans made to veterans, service-disabled veterans, and their spouses might be eligible for reduced or waived fees. 

Other SBA fees

SBA loan guarantee fees are just one aspect of the overall cost of obtaining a loan. The SBA and your lender may charge you additional fees, but the SBA sets limits on how much a bank can charge for a loan. Any fees charged must be documented and signed by all parties at the time of loan dispersal. 

Other fees may include:

• SBA Loan Packaging Fee: Providers typically charge a fee to organize your loan documents and improve your approval chances. 
• SBA Loan Broker Fee: You may need to pay a broker fee ranging from 1% to 4% of your total loan amount. 
• SBA Loan Service Fee: Your SBA loan lender may charge an ongoing service fee to manage your loan, typically ranging from 0.25% to 0.75% of the remaining balance on your loan at each billing cycle. 
• SBA Loan Closing Costs: Closing costs are fees including appraisals, business valuations, titles, attorney costs, and other miscellaneous fees. 
• SBA Loan Late-Payment Fee: You may be charged anywhere from 5% of the late payment to $100 for making a late payment.

Be sure to carefully review the terms, interest rates, and fees associated with any loan you consider for your small business to be sure it sets you up for financial success. SmartBiz® may help you determine if a SBA loan is right for you. Our dedicated team is available to assist with the application process and explain the fees for small business loans. Visit SmartBiz today and discover in about five minutes if you’re qualified for an SBA loan.