May 09, 2022

The SBA Guarantee Fee: How Does It Work?

A government guarantee states that if you can't repay your business loan, the government will cover part of it. Unfortunately, this guarantee may cost you, as the SBA charges a guarantee fee on most loan products. The fee will depend on the loan you choose, the amount you borrow, and your loan term. If you're considering applying for an SBA loan, keep reading to learn more about different SBA loan fees. If you find that the fees are too much for you to afford, you may benefit from seeking other funding sources, which we'll also explain.

What is the SBA Guarantee Fee?

The SBA guarantee fee is a percentage of the guaranteed portion of your loan. While the SBA charges lenders an SBA guarantee fee to back your loan, many lenders pass this cost on to the borrower. The larger your loan, the more significant percentage you'll have to pay to cover the guarantee. Also, the longer your repayment term is, the larger your fee will be. Since you can add the guarantee fee to the total cost of your loan, you won't have to pay for it upfront. You'll have to pay an SBA guarantee fee if you commit to any of these SBA loans:
  • 7(a) loan
  • 7(a) small loan
  • Express loan
  • CAPline
  • Community Advantage loan
  • International Trade loan
  • Export Working Capital loan
  • Export Express loan.
You'll be exempt if you take out a Paycheck Protection loan, an express loan as a veteran-owned business, or a non-7(a) microloan. New call-to-action

How Much is the SBA Loan Guarantee Fee?

In most cases, the SBA fee is anywhere between 2% to 3.75% of the guaranteed amount of the loan. Let's say you take out a $100,000 loan, and the SBA pledges to guarantee 85% of it, or $85,000. Since the guarantee fee will likely be 2% of $85,000, you'll be responsible for $1,700. The more you borrow, the higher your SBA loan guarantee fee will be. You'll find that the SBA guarantee fee for a $5 million loan, for example, is substantial. It's important to note that your SBA guarantee fee may vary if your total loan amount or term ever changes.

Am I Eligible for a Reduced SBA Loan Guarantee Fee?

The SBA does offer a reduced guarantee fee for eligible borrowers. If your business is in a rural area or an underutilized business zone (HUBZone), you may qualify for a lower cost. However, this would be only the case if you took out an SBA 7(a) loan under $150,000. If you meet the criteria, you'll only have to pay an upfront guarantee fee of 0.6667% of the guaranteed portion. In addition, if your term is over 12 months, your lender won't be able to keep more than 0.1667% of the fee. To find out if your business is in a rural area, visit the Census Bureau website. If you're wondering if your business is in a HUBZone, visit the SBA website.


SBA Loan Fees and Taxes

Unfortunately, you can't deduct an SBA guarantee fee from your federal tax bill. You may be surprised to learn this, as you can generally deduct the fees that come with a loan. SBA guarantee fees aren't tax-deductible because they transfer the cost of an SBA small business loan from taxpayers to businesses that depend on government funding. The good news is that some states will allow you to use an SBA guarantee fee as a tax credit. Check with your CPA or tax professional to determine if this benefit is available in your state.

Other Types of SBA Loan Fees

The SBA guarantee fee is one of the various fees the SBA charges its borrowers. Here are a few other types of SBA loan fees you should be aware of:
  • Appraisal Fees: If you use a piece of property as collateral or decide to purchase it with your loan, you may need an appraisal. Depending on where you live, you'll have to pay an appraisal fee ranging from $2,000 to $5,000.
  • Business Valuation Fee: You'll be responsible for a business valuation fee if you use SBA funds to cover a business acquisition. The complexity of the valuation and your business size will determine the fee, ranging from $5,000 to $30,000.
  • Attorney Review Fee: You may have to hire an attorney to review your loan documents before you close, which will cost you between $2,000 to $3,000.
  • Servicing Fee: You will be charged a monthly servicing fee in some cases, notably with the 504 loan.
Unlike SBA guarantee fees which will be added to your loan balance and repaid as part of your monthly payment, you'll need to pay for these other fees upfront at different stages of the loan process.

Should You Consider Other Business Financing Options?

After learning about typical SBA loan fees, you may want to research other business financing options. We suggest weighing all your financing options before committing to an SBA loan. With a small business loan from an alternative lender, you may face specific fees and other additional charges. However, there may not be as many as an SBA loan. For example, some SBA loans come with prepayment penalties, but many alternative lenders don't penalize borrowers for paying off their balance early. If you aren't sure how much fees will cost you, don't hesitate to contact a small business lender to ask them about their fees. At Fora Financial, we are always happy to answer any questions you have about your financing needs!

Conclusion: Understand Your SBA Loan Guarantee Fee 

Before you move forward with an SBA loan, read the fine print. Make sure you understand the SBA guarantee fee charged and any other fees you'll need to pay. This can help you avoid unwanted financial surprises and make it easier to budget for your loan. Editor's Note: This post was updated for accuracy and comprehensiveness in May 2022.