SBA Loan Rates Explained

SBA 7(a) loans have the widest range of uses of all SBA loans (from working capital to debt refinancing to equipment and business purchases), as well as a high maximum loan amount (up to $5 million) and extended repayment terms (as long as 25 years). 

The CDC/SBA 504 is a hybrid loan specific to real estate wherein an SBA-approved lender contributes 50% and a local certified development corporation (CDC) puts up 40%, with the remaining 10% covered by the borrower’s down payment. Terms are either 10 years or 20 years in length, and the CDC’s portion of the rates are set for the loan’s duration.

An SBA Express loan is a variation of the SBA 7(a) loan with an accelerated timeline. An initial response is guaranteed within 36 hours, but the overall processing time of the loan is not guaranteed to be expedited. SBA Express loans come with higher interest rates and a lower borrowing cap of $350,000.

The SBA CAPLine Program is designed for businesses with seasonal or short-term capital needs, and it’s usually given in conjunction with SBA 7(a) or CDC/SBA 504 loans. CAPLines come as fixed rate or revolving lines of credit of up to $5 million.

The SBA Microloan Program is designed for businesses who need a smaller amount of money. They allow borrowers up to $50,000. Interest rates vary widely based on the lender, but still remain lower-than average compared to traditional lending. 

The SBA Economic Injury Disaster Loan Program is designed for businesses undergoing economic or environmental disadvantages. EIDL loans can go up to $2 million. The rates that are set depend upon whether you have credit elsewhere or not. Though they're pretty low currently, they can rise up to a maximum of 8% if you have credit elsewhere, and 4% otherwise.

SBA loans comes with extra costs that aren’t always made apparent. Like origination fees. This fee helps banks and lenders cover their end of the deal, and it’s entirely up to the institution to determine the amount of that fee.

If the lender arrives at a 3% origination fee, they’ll take $1,800 off your $60,000 loan, leaving you with an actual total of $58,200. Of course, you’ll still pay interest based on $60,000.

Unfortunately, there's another cost SBA loans have: a guarantee fee. The bank or lender uses this fee to pay to the SBA in return for their assurance on the loan. It’s usually 3% to 3.5% of the total of the SBA-backed loan, but the repayment term plays a role in the evaluation of that percentage too.

Here's an example of how guarantee fees work. Say you have a $500,000 10-year loan. 75% (or $375,000) is guaranteed by the SBA. If you take 3% of that 75%, that comes out to an $11,250 SBA guarantee fee. 

These fees add up, and that doesn't even take into account the interest rates, or APR (annual percentage rate), but that's the real cost of borrowing capital.

Typically, the shorter the repayment term of a loan, the higher the APR; with a longer term, you get a lower APR. The point is though is that bank is always going to recoup its costs — no matter the length of your agreement.

There’s far more to SBA program loans and interest rates than what we could cover here; working with a trusted lending source and doing your own deeper research are routes we can’t recommend enough for business owners. SBA small-business loans are in high demand due to their low interest rates and wide spectrum of uses, and the qualifications are, in most cases, more exacting than those of standard bank loan applications. They may not be quite as hard to nail down as the location of Elvis’s secret retirement home, but be prepared to put in the work.

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