Small Business Administration (SBA) loans

SBA Loan Rates & How They Work

Updated: July 12th, 2020

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One of the Small Business Administration’s greatest selling points is its below-market interest rate. Chances are you’ll be able to get a loan with a rate that is below that of competitors for the simple reason that the government agency places a cap on what lenders can charge. That’s not to say that you can’t access financing at an attractive interest rate elsewhere. It just means that it’s one of the features inherent in an SBA loan.

The formula is straightforward, but SBA loan rates are not cut and dry. They fluctuate based on what’s known as a prime rate. And, SBA loan interest rates can differ from loan product to product. Depending on the month in which you receive an SBA loan, the interest rate you secure could easily vary. For instance, as a result of the economic slowdown resulting from the COVID-19 pandemic, we’re currently in a low-rate environment. This lends itself to cheaper SBA products compared with year-ago levels. 

Let’s break down what you can expect from SBA loan rates. 

Prime rate + 

SBA loan rates are based on a two-pronged system. But, don’t let that deter you from applying as it’s there to benefit the business owner. First is the prime rate, which is determined by the Federal Reserve and is based on economic conditions. The Wall Street Journal keeps track of these rates, which are published on the first of every month.  

What are the current SBA loan rates?

As of June 2020, the Prime Rate is hovering at 3.25%, which compares to 5.5% in June 2019.  

The second layer has to do with the rate that the SBA allows lenders that facilitate its loans to charge you. The government agency determines the cap for this part of SBA loan rates. This is where the specific loan you apply for — in addition to the duration and amount — comes into play. 

SBA 7(a) interest rates 

The SBA’s 7(a) loan program is its hottest thing going. Business owners find the flexibility in which they can direct the financing very attractive. For instance, you can use it for expansion, new construction, to buy land, buildings or equipment, working capital needs, and more. 

Other features include high loan amounts of up to $5 million and more extended repayment periods of anywhere from five to 10 years – or even 25 years for real estate-related financing.  You’ll find that SBA 7(a) interest rates are either variable or fixed. Below is a list of the maximum variable rates.  

What is the average interest rate on an SBA 7(a) loan?

For 7(a) loans with a term of less than seven years, the rates are as follows

  • Up to $25,000 = Prime (P) + 4.25%
  • Between $25,001-$50,000 = P + 3.25%
  • $50,001 or more = P + 2.25%

For those with repayment terms of more than seven years, the maximum SBA loan rates are as follows; 

  •  0 – $25,000 = P + 4.75% 
  • $25,001 – $50,000 = P + 3.75% 
  • More than $50,000 = P + 2.75% 

The maximum fixed rates are as follows: 

$0 – $25,000 = P + 8%

Banks aren’t the only lenders to support SBA products. Alternative lender Funding Circle offers SBA 7(a) loans with a rate of prime plus 2.75%. At the current SBA loan rates, this amounts to 6%. 

SBA Express interest rates

SBA Express loans, which give you access to a line of credit, are another category. As the name suggests, a key benefit to these loans is the fast turnaround. Express loans could have terms for up to five years for revolving lines of credit. Otherwise, they follow the 7(a) maturity conditions. 

Express loans have a maximum amount of $350,000, half of which is backed by the government agency. The maximum interest rates for SBA Express loans are as follows: 

  • $50,000 or less = P + 6.5% 
  • More than $50,0000 = P + 4.5% 

SBA 504 loan rates 

The SBA’s 504 loans are another popular program. They are designed to finance the purchase of commercial real estate or large equipment acquisitions, as well as refinancings.  They are facilitated through SBA-licensed Certified Development Companies (CDCs) and boast a maximum loan amount of between $5 million and $5.5 million, based on the business type or project. The SBA’s 504 loans include both a CDC portion and a lender portion. The government agency backs the former, but the latter is not.  

What are the current SBA 504 loan rates?

The CDC portion of the loan has a maturity of 10, 20, or 25 years with a fixed interest rate that is determined when the loan is sold. The lender portion could have a shorter term and an adjustable rate. We reached out to the SBA and provided the following SBA 504 loan rates for June 2020: 

  • 20-year maturity: 2.528%
  • 25-year maturity: 2.602%

SBA 7(a) fees 

You’ll also have to contend with some fees. Let’s approach the fee table similar to the way we broke down the maximum SBA loan rates. 

For 7(a) loans, be prepared to pay a couple of layers of fees to both the SBA and the lender delivering the loan. For the SBA’s part, you’ll find fees for the guaranteed portion of the loan except for loans of $125,000 or less, for which there are no guaranty fees. Here’s what to expect from the SBA. 

  • $125,001-$150,000 = 2% of guaranteed portion; Lender can keep 25% of the fee. 
  • $150,001-$700,000 = 3% of guaranteed portion for maturities over 12 months. 
  • $700,001 to $5 million = 3.5% of guaranteed portion up to $1 million; Plus 3.75% of the guaranteed portion that surpasses $1 million; maturities must exceed 12 months. 

 For loans with a maturity of 12 months or less, the fee is 0.25% of the guaranteed portion. 

504 loan fees 

There are multiple fee layers attached to SBA 504 loans, including a participation fee of 0.5% on the lender portion coupled with the CDC’s fee, which could be up to 1.5%. The CDC also has a monthly servicing fee of between 0.625-2% on the unpaid amount. And, there is a guaranty fee of 0.642% on the outstanding principal that is ongoing throughout the term. The SBA’s fees for 504 loans approved in FY2020 are outlined below: 

  • Upfront guaranty fee of 0.50% 
  • An annual service fee of 0.3205% of the outstanding balance of the loan 

Finally, if you plan to pay off the loan early, expect to face a prepayment fee. However, the longer you wait, the less that fee will be. 

We’re in a low SBA loan rate environment 

If you’re considering getting a business loan, there’s no time like the present. Rates are at historically low levels as the Fed moves to stave off an economic slowdown. While there is no crystal ball, rates are expected to stay that way for the foreseeable future. 

If you’re ready to take advantage of the low SBA loan rates, apply for funding today. Funding Circle is now a Preferred Lender of SBA loans, and you can get a decision in as little as 24 hours. 

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