The guaranty fee for an SBA 7(a) loan is an upfront charge that the U.S. Small Business Administration (SBA) collects to guarantee a portion of your loan. This fee helps the SBA cover administrative costs and protect lenders from losses if a borrower defaults, thereby encouraging lending to small businesses.
Why Does the SBA Charge a Guaranty Fee?
The SBA supports small businesses by backing loans from private lenders, reducing lender risk. To fund this guarantee program and maintain financial sustainability, the SBA charges a guaranty fee. It’s a one-time, upfront fee calculated as a percentage of the loan amount guaranteed by the SBA. This system allows the SBA to keep the loan program running without relying solely on taxpayer money.
How to Calculate the Guaranty Fee
Calculating the guaranty fee involves two key factors: the guaranteed portion of your loan and the applicable SBA fee percentage based on your total loan amount.
- Guaranteed Portion: For SBA 7(a) loans, the SBA guarantees 85% for loans up to $150,000 and 75% for loans greater than $150,000, up to $5 million.
- Fee Percentage: The SBA sets fee percentages by loan tiers, adjusted annually. As of Fiscal Year 2024, the upfront fees are:
| Loan Amount | Fee on Guaranteed Portion |
|---|---|
| $150,000 or less | 0% |
| Over $150,000 to $700,000 | 3.5% |
| Over $700,000 to $5 million | 3.75% |
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Calculate the Fee: Multiply the guaranteed portion by the correct fee percentage:
Guaranty Fee = Guaranteed Loan Amount × SBA Fee Percentage
Examples
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For a $300,000 loan:
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Guaranteed Portion = $300,000 × 75% = $225,000
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Fee = $225,000 × 3.5% = $7,875
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For a $1,500,000 loan:
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Guaranteed Portion = $1,500,000 × 75% = $1,125,000
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Fee = $1,125,000 × 3.75% = $42,187.50
Who Pays the Guaranty Fee?
While lenders are responsible for paying the guaranty fee to the SBA, they typically pass this cost to borrowers through closing costs. This fee increases the upfront amount you pay when securing an SBA loan but enables you to access financing that might not be available otherwise.
Important Considerations for Borrowers
- Budget for the fee: Factor the guaranty fee into your overall financing costs beyond just the interest rate.
- Request estimates early: Ask your lender for all expected closing costs, including SBA fees, to avoid surprises.
- Understand the fee’s purpose: It funds the SBA’s guarantee program that helps make loans accessible to small businesses.
- Plan loan size strategically: If possible, consider your loan amount carefully to manage fee tiers, but prioritize your business needs.
Common Myths
- The fee isn’t charged on the entire loan amount, only the SBA-guaranteed portion.
- It is a one-time payment at closing, not an ongoing annual fee.
For more on SBA loans and related topics, see our SBA loan glossary article and loan guaranty percentages.
For the latest SBA fee schedules, refer to the official SBA website at https://www.sba.gov/funding-programs/loans/7a-loans or search for the current year’s SBA guaranty fee notice.
Sources:
- U.S. Small Business Administration (SBA), 7(a) Loan Program
- U.S. Small Business Administration, SBA Information Notices on Guaranty Fees (search at sba.gov)