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SBA guarantee fee, explained

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.

SBA debt relief eliminates guarantee fee

Small businesses that receive an SBA loan before September 30, 2021 don't have to pay a guarantee fee. In fact, you won't have to pay any fees associated with receiving the loan — and the SBA will cover principal and interest repayments for six months on new loans.

Read about the SBA's COVID-19 debt relief program to learn how it works.

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.

10+ guaranteed loans — explained

SBA 7(a) guarantee fees

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

$150,000 or less

$127,500 or less

12 months+

2% of guaranteed amount

$150,001 to $700,000

$112,500.75 to $525,000

12 months+

3% of guaranteed amount

$700,001 to $5 million

$525,000.75 to $3.75 million

12 months+

3.5% for the first guaranteed $1 million, 3.75% for all guaranteed portions over $1 million

Any amount

Varies

Less than 12 months

0.25% 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.

Are SBA guarantee fees tax-deductible?

SBA guarantee fees are not tax-deductible — at least not on federal taxes. While you can normally deduct fees associated with taking out a loan, like an origination fee, this does not apply to SBA guarantee fees. That's because the guarantee fee is meant to shift the cost of an SBA loan from the tax payers to the businesses that rely on government-backed funds.

However, some states like Connecticut allow you to claim an SBA guarantee fee as a tax credit. Ask your accountant if this option is available to you before you file your business's taxes.

Does the SBA charge a guarantee fee on 504 loans?

The SBA started charging a guarantee fee of 0.5% of the amount funded by the CDC for all 504 loans in 2018. 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:

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

Compare SBA loan providers

Name Product Filter Values Loan amount APR Requirements

Fora Financial business loans
Finder Rating: 4.1 / 5: ★★★★★

Fora Financial business loans
$5,000 – $500,000
Varies
6+ months in business, $12,000+ monthly revenue, no open bankruptcies
Get qualified for funding in minutes for up to $500,000 without affecting your credit score. Best for companies with at least six figures in annual revenue.

Lendio business loans
Finder Rating: 4.75 / 5: ★★★★★

Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.

National Funding business loans
Finder Rating: 4.75 / 5: ★★★★★

National Funding business loans
$5,000 – $500,000
4% to 8%
Be in business at least one year and make at least $150,000 in annual sales. Other loan types have additional requirements.
Working capital loans and equipment financing, some high-risk industries may be eligible.

Fundbox lines of credit
Finder Rating: 4.2 / 5: ★★★★★

Fundbox lines of credit
$1,000 – $150,000
Not stated
6 + months in business, $100,000+ in annual revenue, 600+ credit score
Get flat rate, short-term financing based on the financial health of your business, not your credit score.

Bitty Advance business cash advances
Finder Rating: 2.8 / 5: ★★★★★

Bitty Advance business cash advances
$2,000 – $25,000
Not applicable
$5,000 monthly bank revenue, 6+ months in business, business bank account open 3+ months, 450+ credit score
With APRs in the triple digits, this is best saved as a last resort.
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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

Packaging fee

A 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 fee

An annual fee to cover the ongoing overhead costs associated with your loan.

0.55% of the unpaid balance each year.

Extraordinary servicing fee

A 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 reimbursement

Reimbursement 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 fee

A 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

Processing or packaging fee

A fee for helping borrowers put together and process an application.

Up to 1.5% of the CDC portion of the loan.

Closing fee

A fee to cover legal services and other costs associated with closing your loan.

Varies by applicant and CDC.

Servicing fee

An annual fee to cover the ongoing overhead costs associated with your loan.

0.368% of the unpaid balance each year.

Late fee

A fee if you pay after the 15th of the month.

$100 or 5% of the amount due, whichever is greater.

Central servicing agent (CSA) fee

An annual fee charged by the company that handles your loan repayments.

0.1% of the loan amount per year, paid in monthly installments.

Underwriters’ fee

An 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.

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