The SBA Guarantee Fee Explained

The Small Business Administration (SBA) program provides entrepreneurs with low-interest loans to cover just about any imaginable business expense. The SBA doesn't actually foot any of the cash-they just guarantee a portion of the loans to lower the risk for traditional banks and alternative lenders.

The SBA tries to push the financial burden of the SBA's financial assistance programs onto the shoulders of entrepreneurs instead of taxpayers-that's why they charge lenders with an SBA guarantee fee. Lenders, in turn, pass these costs onto the borrowers in the form of upfront fees. SBA Guaranty fees range from 2% to 3.75%, depending on the guaranteed portion and repayment terms.

When it comes to rates and terms, you won't find a better financing option than an SBA loan. However, navigating SBA loans and other complexities can feel a bit overwhelming-we're here to help. In this quick-and-easy article, we'll explain everything you need to know about SBA guarantee fees before you secure your business a brand-new loan.

What Is the SBA Guarantee Fee? 

The purpose of an SBA Guarantee fee is to cover the government's cost when a borrower defaults on a loan. Since the SBA has to compensate lenders for a portion of the default, the SBA needs funding. That's where the SBA guarantee fees help.

Who Pays the SBA Guaranty Fee?

Instead of raising taxes to cover the costs, the SBA charges lenders who, in turn, charge borrowers to pass the burden on to the small businesses getting the benefit. In the end, small business owners pay the SBA guaranty fees.

SBA Guarantee Fee Costs

When the SBA backs a loan, they don't guarantee 100%-they usually guarantee anywhere between 75% to 85% of the loan. The SBA determines the guarantee fee depending on the loan's guaranteed portion, not necessarily the total loan amount.

For example, if the SBA guarantees 75% of a $200,000 loan, that means the SBA covers the lender for a maximum of $150,000 if the borrower defaults. Your guarantee fee would then be assessed on the guaranteed portion ($150,000, in this example).

Here's what the SBA is currently charging for 7(a) loans:

Loan AmountSBA GuaranteeGuaranteed AmountSBA Guarantee Fee If Loan Term > 1 YearSBA Guarantee Fee If Loan Term ≤ 1 Year$150,000 or less85% of the loan $127,500 or less2%0.25%$150,001 to $700,00075% of the loan$112,500.75 to $525,0003%0.25%$700,001 to $1 million75% of the loan$525,000.75 to $750,0003.5%0.25%$1,000,001 to $5 million75% of the loan*$750,000.75 to $3,750,0003.5% for portion up to $1 million, plus 3.75% for portion over $1 million0.25%

Different SBA loan programs have separate sets of fees. SBA 504 loans currently charge 0.5% of the loan amount for their guaranty fees, while non-7(a) microloans have no guaranty fee. Use the SBA's Quick Reference to SBA Loan Guarantee Programs for more information on guarantees and fees for varying loan programs.

Is the Guarantee Fee the Only SBA Loan Fee?

No, the SBA has other loan fees you have to pay. 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. 

According to the SBA's website: "Lenders can't charge a separate loan origination fee on an SBA guaranteed loan. Lenders can charge 'packaging fees,' but the fees must be reasonable and customary for the services actually performed and must be consistent with those fees charged on the lender's similarly-sized non-SBA guaranteed commercial loans."

Any fees charged must be documented on SBA Form 159 7(a) and signed by all parties at the time of loan disbursement.

Here's a list of other SBA 7(a) loan fees you can expect:

• SBA Loan Packaging Fee: Loan providers typically charge an SBA loan packaging fee to organize your loan documents and improve your approval chances. This fee can be anywhere from $2,000 to $4,000.
• SBA Loan Broker Fee: If you used a broker to facilitate the loan, you might need to pay a broker fee. The SBA doesn't allow "broker fees," but these fees often get bundled into the packaging fees. Typical broker fees range 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. These fees help cover the costs of billing, processing, and maintaining records. Loan service fees typically range from 0.25% to 0.75% of the remaining balance on your loan at each billing cycle.
• SBA Loan Closing Costs: SBA loan closing costs are basically a miscellaneous group of fees lumped together. These include appraisal fees, business valuations, title fees, attorney costs, and more.
• SBA Loan Late-Payment Fee: You could be charged anywhere from 5% of the late payment to $100 (whichever is greater) for making a late payment.
• SBA Loan Prepayment Fee: For long-term SBA loans, you'll typically face prepayment penalties if you pay off your loan early.