By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
Typical SBA loan rates, fees and other closing costs associated with SBA financing is discussed on this page.
SBA Loan Rates
On the SBA 7a loan most banks tie their rate to the Prime Rate, and a few to LIBOR. The maximum margin that the SBA allows banks/lenders to charge is 2.75% over the above mentioned indexes. At the time of this writing Prime is at 3.25%. So the typical SBA loan rate on a 7a would currently be 6% or lower.
Most banks max out the margin to 2.75%. For very strong borrowers with general purpose buildings such as retail, office or industrial, some banks go down to 2.25 – 2.5%. The rate then in this example would be 5.5% – 5.75%, based on Prime being at 3.25%. It is very, very rare to see a bank offer a lower rate on an SBA 7a loan than that. If they do it is normally because the bank is getting other, more lucrative business from the borrower than just the loan (such as lines, deposits, etc)
Also, on SBA 7a loans the rate almost always floats against the Index, adjusting quarterly. It is rare for a bank to offer a even a 3 or 5 year fixed rate on a 7a loan. We estimate that literally 95% of the banks and SBA lenders out there only offer quarterly adjustable rates (on the 7a).
The amortization schedule on an SBA 7a loans is 25 years for a transaction that includes real estate, 10 years on equipment or godwill and normally 7 years for working capital. Want to figure out your monthly payments? go here to our commercial mortgage calculator.
SBA 504 Loan Rates
The rates on this program are fixed from 1, 3, 5, 10 and even 25 years and normally are very competitive when compare to other commercial loan programs. Note this program can only be used to purchase hard assets like commercial real estate.
SBA Loan Fees and Closing Costs
There are various types of SBA loan fees and associated third party report costs. Here is an example of these on a SBA 7a (Scroll below to see 504 fees) with a loan amount of $1,000,000, that is tied to commercial real estate:
- $26,250 – 3.5% SBA guarantee fee (the percentage ranges based on the size of the loan amount) The guarantee fee is calculate off of the portion of the loan amount which is actually guaranteed by the SBA. This is normally set at 75% of the total loan amount on a SBA 7a loan (75% x $1,000,000 = $750,000 x 3.5% = $26,250). This fee is financed into the loan amount.
- $4,000 Appraisal Report (some areas of the country maybe lower than this, but not by much. If your buying a business, with no real estate, the appraisal will likely be lower at appr $2,000.)
- $1,800 Phase One Environmental Report
- $1,500 Title (Title cost vary considerably depending on the state and loan amount)
- $2,500 SBA Packaging Fee (This is an optional expense that most banks charge the borrower)
- $2,500 Attorney Review Fee (This is another optional fee, that funding sources charge to borrowers)
- $38,550 Total Costs
Borrowers that compare these costs to the closing cost on a normal conventional bank loan will notice the additional expenses of the packaging fees and attorney review fees. These fees are not required, but the vast majority of banks do demand that the borrowers pay them. Most of these services (the packaging and legal review fees), are normally hired out to third parties.
Other more typical fees such as title, appraisal and environmental will normally be on the high side with SBA loans as well. Most banks that do SBA financing, will use the third party vendors with the best credentials and therefore require the highest price. For example, a typical appraisal for an SBA loan will cost $4,000 – even if the loan request is small at say $500,000.
SBA 504 Loan Fees
Here’s a break down of the typical fees on a SBA 504 loan. Note that the fees normally total about 2.4% of the total loan amount. This is fairly standard across the industry. Keep in mind there are two loans on a 504. The first lien position loan is a bank loan. It goes to 50% loan to value. The second loan is the CDC loan (this is the SBA loan) it goes from 51% loan to value to 90% and sits in second lien position.
Most banks charge a 1% origination fee on both loans. SBA/CDC charges 0.50% origination on the first loan. The SBA/CDC charges 2.65% loan fee on the second loan. The CDC also normally charges a flat fee of around $2,500. Other fees include appraisal at $4,000 +/-, environmental report from $1,800, building inspection report $700. Plus title and attorney review fees depending on your state.
Here’s a quick break down on a $1,000,000 purchase, with 90% financing:
- $900,000 total loan amount between the two loans.
- $500,000 on the first conventional loan.
- $400,000 on the second/CDC loan.
- $9,000 origination fee to the bank on both loans, or 1%.
- $2,500 origination fee the SBA on the first loan, or .5%.
- $10,600 origination fee to the CDC on the second, or 2.65%,
- $22,100 in origination fees or approximately 2.4% of the total loan amount.
SBA Loan Closing Costs – Why Pay Them?
Despite the high fees that are associated with SBA loans, they are still very popular – why? A couple of reasons. One, SBA loans provide the highest level of leverage in the industry at up to 90%. Two, these loans close. This is a huge point and should not be over looked.
Three, most of these costs are rolled into the loan, ie the costs can be financed. The appraisal fee, packaging fee and Phase 1 are normally paid for upfront, but most banks will allow these costs to be reimbursed at closing, especially on refinances.
Four, besides the fees, these loan programs can have good terms. Like low rates, no balloon clauses, long amortization periods (normally 25 years on real estate) and the most flexible underwriting standards in the business. Because of these reasons, many business owners tolerate the fees and go forward with the loan.