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SBA guarantee fee explained

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The government may back your loan, but it comes at a price.

Small Business Administration (SBA) loans are known for their highly competitive rates, thanks to a government guarantee. This means that the government covers part of your loan if your business can’t pay it back. But it’s not always free: The SBA charges a guarantee fee on many of its loans. How much you pay depends on your loan program, how much you’re borrowing and your term.

What is an SBA guarantee fee?

The SBA guarantee fee is a percentage of the SBA-guaranteed portion of your business loan. Technically, the SBA charges lenders an SBA guarantee fee in exchange for partly backing your loan. However, lenders typically pass this cost on to the borrower. How much the fee costs depends on two main factors:

  • Loan amount. Generally, the larger your loan, the larger percentage you’ll pay for the guarantee.
  • Loan term. Similarly, the longer you take to repay your loan, the larger the guarantee fee.

You can usually roll the guarantee fee into the total cost of your loan, so you don’t have to pay it up front.

What's the difference between guaranty and guarantee?

When it comes to SBA loans, there’s no difference between guarantee and guaranty. Both an SBA guarantee and SBA guaranty mean that the SBA is responsible for repaying part of your loan if you default. Guaranty is an old term that rarely shows up outside of legalese, though you might find it in some SBA documents. Otherwise, guarantee is much more common.

SBA 7(a) guarantee fees

Here’s what you can expect to pay based on the amount you borrow and your loan term:

Total loan amountGuaranteed amountLoan termGuarantee fee
$150,000 or less$127,500 or less12 months+2% of guaranteed amount
$150,001 to $700,000$112,500.75 to $525,00012 months+3% of guaranteed amount
$700,001 to $5 million$525,000.75 to $3.75 million12 months+3.5% for the first guaranteed $1 million, 3.75% for all guaranteed portions over $1 million
Any amountVariesLess than 12 months0.25% of guaranteed amount

These guarantee fees don’t just apply to your standard SBA 7(a) loans. You can expect to pay them on the following SBA loans:

  • 7(a) loans
  • 7(a) small loans
  • Express loans
  • CAPLines
  • Community Advantage loans
  • International Trade loans
  • Export Working Capital loans
  • Export Express loans

Can I qualify for a reduced fee?

Businesses located in rural areas or historically underutilized business zones (HUBZones) are eligible for fee relief for any SBA 7(a) loan under $150,000. You’re only required to pay an upfront guarantee fee of 0.6667% of the guaranteed portion. And if your loan term is over 12 months, your lender can’t keep more than 0.1667% of the fee.

According to the SBA, rural businesses are located in areas that the US Census Bureau classifies as “rural” or “mostly rural.” You can find out if your area qualifies on the Census Bureau’s website.

HUBZones are areas that the federal government has singled out for development. You can check if your business is in a HUBZone on the SBA website.

How does it work?

SBA 7(a) guarantee fees can be a bit confusing. The percentage you pay depends on your total loan amount, but your fee is only based on the part that the SBA guarantees. Let’s take a look at a few examples:

Example 1: $200,000 loan

Say a business took out a 7(a) loan of $200,000 with a two-year term. The SBA guarantee fee on loans of that amount is 3%. However, that 3% doesn’t apply to the total $200,000, but to the guaranteed portion only. Since the SBA guarantees 75% of all 7(a) loans over $150,000, the guaranteed portion of that loan is 75% of $200,000, or $150,000.

The SBA guarantee fee is 3% of $150,000, or $4,500.

Example 2: $1 million loan

Say another business took out a $1 million 7(a) loan with a 10-year term. The SBA guarantee fee on loans of that amount is 3.5%. But again, what the business actually pays isn’t 3.5% of $1 million, but 3.5% of the guaranteed portion of the loan. Since the SBA guarantees 75% of all 7(a) loans over $150,000, the guaranteed portion of a $1 million loan is $750,000.

The SBA guarantee fee is 3.5% of $750,000, or $26,250.

Example 3: $5 million loan

Say a third business took out a $5 million 7(a) loan with a two-year term. This is where things get tricky. The SBA guarantee fee on loans over $700,000 is 3.5% for the first $1 million of the guaranteed portion and 3.75% for the rest of the guaranteed portion. Like with the other two examples, the SBA guarantees 75% of a $5 million loan, or $3.75 million.

The SBA guarantee fee is 3.5% of $1 million plus 3.75% of $2.75 million, or $138,125.

Does the SBA charge a guarantee fee on 504 loans?

As of October 2018, the SBA started charging a guarantee fee of 0.5% of the amount funded by the CDC for all 504 loans. They also come with several other fees, some of which work a lot like a guarantee fee.

Can I get an SBA loan with no guarantee fee?

Yes, you can depending on your business and loan type. You won’t have to pay a guarantee fee if you take out:

  • Express loans as a veteran-owned business
  • Non-7(a) microloans

Compare SBA loan providers

Rates last updated December 16th, 2018
Unfortunately, none of the business loan providers currently offer loans for these criteria.
Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
SmartBiz SBA Loans
Get funding for your small business with a government-backed loan and extended repayment terms.
$30,000
$5,000,000
650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years
LendingTree Business Loans
Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
Varies by lender and type of financing
Varies by lender and type of financing
Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
Excel Capital Management Small Business Loans
Get personalized financing options that suit your unique business needs in just a few simple steps.
Varies by loan type
Varies by loan type
Your business must operate in the US, be at least 1 year old and have monthly revenue of $15,000+.
National Business Capital Business Loans
Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
$10,000
$5,000,000
Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.

Compare up to 4 providers

Other SBA loan fees

SBA guarantee fees might be the most well known, but they’re not the only ones you need to worry about. Here’s a rundown of some of the fees you can expect with both the SBA 7(a) and 504 loan programs.

SBA 7(a) fees

Type of feeHow it worksCost
Packaging feeA fee for helping borrowers put their application together, including filling out forms, making a business plan and consultations.
  • Under $50,000: 3% of the loan amount.
  • Over $50,000: 2% for the first $1 million, plus an additional 0.25% on the rest of the loan — no more than $30,000.
Servicing feeAn annual fee to cover the ongoing overhead costs associated with your loan.0.55% of the unpaid balance each year.

Extraordinary servicing feeA fee to cover the cost of ongoing services that require extra effort, like regularly checking in on the value of inventory or accounts receivables used as collateral.Typically up to 2% of the loan amount.
Out-of-pocket expense reimbursementReimbursement for any expenses associated with preparing the SBA loan application, such as UCC filing fees, postage, environmental impact reports, collateral appraisals and more.Varies by applicant and lender.
Late payment feeA fee if a payment is more than 10 days past due.No more than 5% of payment amount.
Subsidy recoupment fee A prepayment penalty on long-term loans. It applies if:

  • A loan has a term of 15 years or longer.
  • The borrower repays 25% of the loan or more in the first three years.
  • 5% of the amount paid in the first year.
  • 3% of the amount paid in the second year.
  • 1% of the amount paid in the third year.

SBA 504 fees

Type of feeHow it worksCost
Processing or packaging feeA fee for helping borrowers put together and process an application.Up to 1.5% of the CDC portion of the loan.
Closing feeA fee to cover legal services and other costs associated with closing your loan.Varies by applicant and CDC.
Servicing feeAn annual fee to cover the ongoing overhead costs associated with your loan.0.368% of the unpaid balance each year.
Late feeA fee if you pay after the 15th of the month.$100 or 5% of the amount due, whichever is greater.
Central servicing agent (CSA) feeAn annual fee charged by the company that handles your loan repayments.0.1% of the loan amount per year, paid in monthly installments.
Underwriters’ feeAn upfront fee for processing and evaluating your loan application.
  • 10-year term: 0.375% of loan amount.
  • 20-year term: 0.4% of loan amount.

Bottom line

Whether you’re applying for an SBA 7(a) or 504 loan, you’re likely on the hook for a guarantee fee. But how much you pay depends on your exact loan type, how much you borrow and your term. While the SBA guarantee fee might be the most widely known, it’s possible to end up paying much more in other fees associated with these government-backed loans.

Read our SBA loans guide to learn more about how they work. Or explore your other financing options with our comprehensive guide to business loans.

Frequently asked questions

Anna Serio

Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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