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.

Lurking in all these numbers are extra costs that aren’t always made readily apparent. Banks and lenders will usually tack an origination fee onto a loan to 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.

SBA loans have another processing cost lying in wait called a guarantee fee, which the bank or lender pays to the SBA in return for their assurance on the loan—and it’s usually 3% to 3.5% of the total. The guarantee fee is determined by the amount and term of the SBA-backed loan.

Let’s look at an example of how much you can expect for a guarantee fee. On a $500,000, 10-year loan, 75% (or $375,000) is guaranteed by the SBA; 3% of that 75% comes out to an $11, 250 SBA guarantee fee. And if the origination fee wasn’t enough, you’re on the hook for the guarantee fee too.

These fees plus interest rates add up to the real cost of borrowing capital, elegantly titled as APR (annual percentage rate) or sometimes APY (annual percentage yield). Typically, the shorter the repayment term of a loan, the higher the APR; with a longer term, you get a lower APR. The 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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