SBA Loan Rates: A Complete Guide

The Small Business Administration (SBA) provides a number of loan programs designed to help small businesses. SBA loans are known for having some of the lowest interest rates possible. Below, we explain the rates for three of the SBA’s most popular loan programs:

  • 7(a) Loans: General purposes loans used for many business purposes such as working capital, inventory purchasing, refinancing, and other reasons.
  • CDC/504 Loans: Loans used to purchase commercial real estate and other fixed assets like equipment and machinery.
  • Disaster Loans: Loans used to help businesses that have been physically or economically damaged by a disaster.

SBA 7(a) Loan Rates

The 7(a) loan program is the SBA’s most popular program. The SBA works with partners, such as banks and other financial institutions, to offer low-cost loans for most business purposes, including working capital, refinancing, equipment, and other reasons.

While the SBA does not directly loan money under this program (that’s the prerogative of banks and other financial institutions), it guarantees a portion of the loan and sets limits on the interest rates, fees, and term lengths the financial institutions can offer.

Current 7(a) Interest Rates

The maximum rate for SBA 7(a) loans varies based on your term length, the borrowing amount, and the base rate (see below for an explanation of base rate). Below are the current rates for most SBA 7(a) business loans (as of March 2018):

Loan Amount Less Than Seven Years More Than Seven Years
Up To $25,000 8.75% 9.25%
$25,000 – $50,000 7.75% 8.25%
$50,000 Or More 6.75% 6.25%
Current Prime Rate: 4.50%

SBA Express and SBA Export Express loans (loans with an accelerated turnaround time) have slightly different rates. Currently, the maximum rate for Express loans of $50,000 or less is 11%; the rate for loans above $50,000 is 9%.

SBA 7(a) Loan Eligibility & Terms

If you run a for-profit business, you are likely eligible for a 7(a) business loan in the eyes of the SBA. However, the partner lenders are ultimately responsible for borrower eligibility. In general, to qualify for a loan, you will need to meet these requirements:

  • Own a business that is at least two years old
  • Have fair credit
  • Have strong cash flow and debt-to-income ratio

If eligible, borrowers benefit from long-term, low-interest loans that can be used for most general business purposes.

  • Most loans have a maximum borrowing amount of $5 million. SBA Express loans max out at $350,000. The amount you are eligible for will depend on the use of proceeds, your cash flow, and other factors.
  • Maximum term lengths are 10 years for most loans, including inventory, working capital, and equipment. For real estate, the maximum term length is 25 years.
  • The SBA will guarantee a portion of your loan. For loans of $150,000 or less, the SBA will guarantee 85% of the loan. If your loan is above $150,000, the SBA will guarantee 75% of the loan. Express loans carry a maximum guarantee of 50%.
  • The SBA charges a guarantee fee of 0% to 3.75% and a possible prepayment penalty. SBA partners might also charge fees, such as closing costs, referral fees, packaging fees, or others.

How SBA 7(a) Rates & Fees Are Determined

The lender sets your interest rate, but the SBA ensures that there is a maximum interest rate they can charge. The rate is determined by a base rate plus a small markup. Usually, the base rate is the WSJ prime rate, but lenders could use any of these base rates:

  • Prime Rate: The lowest rate banks set for lending. The most commonly used prime rate is published by the WSJ.
  • One Month LIBOR + 3% Rate Adjustment: The London Inter-bank Offered Rate, a rate used for inter-bank lending in London.
  • SBA Optional Peg Rate: A metric which the SBA defines as “a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan.”

The base rate is added to a small markup to determine the maximum interest rate. Here are the markups for most 7(a) loans:

Loan Amount Less Than Seven Years More Than Seven Years
Up To $25,000 Base rate + 4.25% Base rate + 4.75%
$25,000 – $50,000 Base rate + 3.25% Base rate + 3.75%
$50,000 Or More Base rate + 2.25% Base rate + 2.75%

For SBA Express and SBA Export Express loans, the markups are base rate + 6.5% for loans of $50,000 or below, and base rate + 4.5% for loans above $50,000.

General 7(a) loans rates can be fixed, but usually they have a variable interest rate. If you have a variable rate, your interest rate will rise or fall when the base rate changes.

In addition to the interest rate, the SBA might charge a one-time guarantee fee or a portion of your loan. The fee is based on the loan amount:

  • Loans of $150,000 or less: No guarantee fee
  • Loans of $150,001 to $700,000: A 3% guarantee fee
  • Loans of $700,001 & Above: A 3.5% guarantee fee
  • Loans above $1,000,000: A 3.5% guarantee on the first $1,000,000 and an additional 0.25% (to 3.75%) on the portion above $1,000,000.

The SBA also charges a small prepayment penalty if you repay in the first three years of a loan with a term length of 15 years or longer.

In addition to the SBA’s fees, the partners you are working with are allowed to charge some fees. You might be charged closing costs, referral fees, or others.

SBA 7(a) Loan Calculator

The interest rate will give you a lot of information, but to fully understand the cost of an SBA loan, you’ll need to know about other information, including the APR and the total cost of borrowing. If you have an SBA loan offer, use the calculator below to get estimates on everything you need to know to make an informed decision.

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Where To Find SBA 7(a) Loans

If you’re looking for an SBA 7(a) loan under $350,000 for working capital, debt refinancing, or real estate, your first stop is SmartBiz. This lending facilitator, which is responsible for originating the most 7(a) loans of $350,000 or less in 2017, uses technology to instantly check if you’re eligible for a loan and to speed up the lending process. Check out our SmartBiz Review to learn why they’re one of our favorite small business finance services, or head over to their website.

smartbiz logo
Borrower requirements:
• In business at least 2 years
• Owner’s personal credit score is 600 or above
• No specific revenue requirements
Visit the SmartBiz website

If SmartBiz isn’t for you, the SBA offers a Lender Match service. After filling out a short questionnaire with information about yourself and your business, the SBA will refer you to lenders you’re eligible for.

SBA CDC/504 Loan Rates

SBA 504 loans are used to finance fixed assets such land, real estate, and machinery. To offer these loans, the SBA works with Community Development Companies (CDCs) and other financial partners. The project is typically funded 40% by the CDC, 50% by a financial partner (usually a bank), and 10% by your business. If your business is new (under two years old) or funding a special property, you might have to pay a larger percentage of the cost.

While borrowers can use a general 7(a) loan to finance fixed assets, CDC/504 borrowers benefit from low, fixed, interest rates and larger possible borrowing amounts.

Current SBA CDC/504 Interest Rates

Overall, CDC/504 loans carry lower interest rates than the SBA’s 7(a) loans. Below are the current estimates (as of March 2018):

  • Effective rate for 10-year loans: About 4.63%
  • Effective rate for 20-year loans: About 4.97%

Due to the complicated nature of determining rates for CDC/504 loans, the above rates are estimated to the best of our ability. On receiving a loan, your rate might be slightly different than the rates seen above.

CDC/504 Loan Eligibility & Terms

In addition to showing that you have the ability to repay the loan, to qualify for a CDC/504 loan, you’ll have to show that you have management experience and that the project will create jobs. If you meet these requirements, you have a good chance of qualifying:

  • Must be a for-profit business
  • Must do business in the US
  • Must not have funds available elsewhere
  • Must have demonstrated the ability to repay the loan
  • Must have relevant management expertise and a business plan
  • Must have “a tangible net worth less than $15 million, and an average net income less than $5 million after taxes for the preceding two years”

Businesses that qualify will be able to borrow a loan with these terms:

  • The maximum the SBA will lend is $5,000,000, but can go up to $5,500,000 for some projects. The amount you qualify for is dependent on the needs of the project, your business’s finances, and whether your project meets certain community development goals such as job creation.
  • The maximum term length for equipment and machinery is 10 years, and the maximum length for real estate is 20 years.
  • Borrowers are subject to one-time and ongoing fees including monthly servicing fees and guarantee fees. However, most fees are included in the effective interest rate.
  • The project being financed is typically used as collateral. Additionally, the SBA guarantees 100% of the CDC’s portion of the loan.
  • The SBA charges a prepayment penalty for the first half of the loan (the first five years of a 10-year loan, and the first 10 years of a 20-year loan). The penalty is a small percentage of the remaining balance, which decreases the longer your loan is outstanding.

How CDC/504 Loan Rates Are Determined

CDC/504 loan rates are based on the 5- and 10-year treasury rates plus a spread to the bond investor. Additionally, the rate includes markups to cover fees for the SBA and its various partners, which include ongoing borrower fees, CDC servicing fees, CSA fees:

  • SBA borrower fees: 0.914%
  • CDC fees: Minimum 0.625%
  • CSA fees: 0.1%

In total, these fees usually add up to about 1.64%. There are some upfront fees included in your loan, but these fees are not rolled into your interest rate. The spread to the bond investor changes month-to-month, but we have averaged out last year’s spread to estimate the spread for 2018.

Overall, here is how we have come up with our estimated effective rates:

  • 10-year loans: The 5-year treasury rate (for the first of the month — 2.58% for March 2018) + averaged spread for last year’s 10-year loans (0.41%) + ongoing fees (1.64%)
  • 20-year loans: The 10-year treasury rate (for the first of the month — 2.81% for March 2018) + averaged spread for last year’s 20-year loans (0.52%) + ongoing fees (1.64%)

Where To Find SBA CDC/504 Loans

The best place to look for a 504 loan is via the SBA’s Lender Match platform. After filling out the questionnaire, lenders you’re eligible for will get in touch with you within 48 hours.

SBA Disaster Loan Rates

SBA Disaster Loans are designed to help businesses stay afloat and rebuild following a disaster. To qualify for a disaster loan, you will need to be a business or consumer in a declared disaster area. A disaster loan is used to cover costs that aren’t met by your insurance company or FEMA.

If your business has been affected by a disaster, you might qualify for a long-term, low-cost loan for physical or economic damages. Loans for physical damage can be used to repair or replace property damaged by the disaster. Loans for economic damages can be used to “help small businesses survive until normal operations resume after a disaster,” by giving you the working capital necessary to keep your business going.

Current Disaster Loan Interest Rates

Disaster loan interest rates depend on whether or not you have the ability to access funds elsewhere, which the SBA calls “credit available elsewhere”:

  • If you have credit available elsewhere: The maximum interest rate will be 8%.
  • If you don’t have credit available elsewhere: The maximum rate will be 4%.

Disaster loan interest rates are fixed, which means that they will stay the same for the life of the loan. Although the above numbers are the maximum, disaster loans often carry lower interest rates, especially for non-profit organizations.

For example, here are the interest rates for businesses in Georgia that were affected by Hurricane Irma:

NO Credit Available Elsewhere Credit Available Elsewhere
Business Loans 3.305% 6.610%
Non-Profit Organization Loans 2.500% 2.500%
Economic Injury Loans — Businesses & Agricultural Co-ops 3.305% N/A
Economic Injury Loans — Non-Profits 2.500% N/A

Loan rates vary based on the disaster and the area. To see the rates in your area, take a look at the fact sheet related to the incident that affected your business.

SBA Disaster Loan Eligibility & Terms

Disaster loans are used to cover costs that aren’t covered by insurance or FEMA. Both for-profit and private non-profit businesses are eligible. Because disaster loans are still loans, the SBA will still be interested in your creditworthiness and ability to repay. Here are the basic eligibility requirements:

  • Must be in a declared disaster area
  • Must have experienced physical or economic damage to your business
  • Must have demonstrated the ability to repay the loan
  • Must have acceptable credit

Eligible applicants can borrow loans with these terms:

  • Most loans have a maximum borrowing amount of $2,000,000, but the amount you are offered depends on need and repayment ability.
  • If you don’t have credit available elsewhere, the loan has a maximum term length of 30 years;, if you do have credit available elsewhere, the maximum term length is seven years.
  • For loans over $25,000, the SBA will require that you pledge any collateral that you have available.

How Disaster Loan Rates Are Determined

Disaster loan rates are determined by these factors:

  • Credit available elsewhere: If you have the ability to access funds from other, non-federal, sources, the SBA will assign you higher interest rates.
  • Type of business or organization: Disaster loans are granted to businesses, private non-profit organizations, small agricultural co-ops, and homeowners. Your interest rate will be dependent on the category you fit into. In general, businesses have the highest interest rates, whereas homeowners have the lowest.
  • Disaster and area: Interest rates differ based on the disaster and area. To see the rates available in your area, take a look at the fact sheet via the SBA’s disaster loan portal.

Where To Find Disaster Loans

You can check whether your business is in a declared disaster area and get your application started via the SBA’s Disaster Loan Assistance page.

The post SBA Loan Rates: A Complete Guide appeared first on Merchant Maverick.



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