SBA Loan Rates and Terms Explained

Small Business Administration (SBA) loans provide small businesses with affordable financing options through competitive interest rates and flexible terms.

As part of its mission to support business growth in the United States, the SBA facilitates funding opportunities for business owners. The SBA helps by guaranteeing a portion of the loan—typically 75%—reducing the lender’s risk and encouraging them to approve financing they might otherwise decline.

Understanding SBA loan rates and terms can help you assess whether an SBA loan is right for your business.

Business Funding Group (BFG) has expertise in processing SBA loans and has extensive knowledge of the program’s rates and conditions.

SBA Loan Programs

SBA 7a: The most common SBA loan program, offering flexibility for various business-related expenses, projects, or the purchase of owner-occupied real estate.

SBA 504: Owner occupied real estate, larger equipment purchases, offering long term fixed rates.

SBA Loan Interest Rates

The SBA regulates all the rates and fees associated with getting a loan. What interest rate you end up paying depends on several factors, but the most common interest rates are described below.

7(a)

Although the SBA allows lenders to set fixed interest rates on 7(a) loans, lenders who offer such terms are far and few between. Most lenders charge variable interest rates.

Variable interest rates are adjusted quarterly based on the prime rate.

7(a) working capital loans: prime + 2.75
7(a) real estate loans: usually prime + 2.25

SBA 7(a) loans are paid off like a mortgage in equal payments.

504

Under the 504 loan program you can get fixed rates for periods of 25 years, significantly lowering your monthly costs.

A 504 loan is given by two parties:

50% comes from a lender: you usually get at least a 5-year fixed rate, 10-year term, and 25-year amortization.
40% comes from the CDC / SBA: they give you the option for a 20 or 25-year fixed rate, term, and amortization

SBA Loan Repayment Terms

Which loan program and the use of funds dictates the repayment period for SBA loans:

7(a) working capital loans: 10 years
7(a) real estate loans: 25 years
504 real estate loans: 25 years

Prepayment Penalties

Prepayment penalties are fees charged when you pay off a loan early.

7(a)

7(a) Working capital: No prepayment penalties, allowing you to accelerate payments without additional costs.
7(a) Real estate: Limited prepayment penalty for the first 3 years:
5% the first year, 3% the second year, and in the third year 1%

504

Since 504 loans involve two lenders—the CDC/SBA and a bank—prepayment penalties vary:

Bank Portion (50%): Terms are negotiated on a case-by-case basis, depending on the bank’s policies. A common structure is a five-year prepayment penalty of 5%, 4%, 3%, 2%, and 1% each year, respectively.
CDC/SBA Portion (40%): A 10-year prepayment penalty applies, starting at approximately 1% below your interest rate and decreasing by 10% annually.

We can discuss your specific loan terms and how prepayment penalties may apply to your situation.

SBA Guarantee Fee

A unique feature of SBA loans is the SBA guarantee fee—a charge for the government’s loan guarantee, which reduces lender risk and enables better loan terms for borrowers

Think of it as an insurance fee — it helps cover the cost of repaying lenders when borrowers default on their SBA loans.

July 23, 2024 SBA published regarding the SBA guarantee fee for 7a loans:

Loans of $1,000,000 or less: 0.00%.
For loans of $1,000,001 to $5,000,000:
- 3.5% on the first $1 million of the SBA-guaranteed portion.
- 3.75% on the guaranteed portion above $1 million.

Example: 2M SBA 7a loan

SBA guarantees 75% of the 2M borrowed, which equals $1.5 million guaranteed:

The first $1 million of the guaranteed portion is charged 3.5%, which equals $35,000.
The remaining $500,000 of the guaranteed portion is charged 3.75%, which equals $18,750.
Total upfront SBA guarantee fee: $53,750.

This fee is almost always baked into the loan and paid over the life of the loan.

For SBA 504 loans, there is no SBA guarantee fee. However, the CDC charges a fee of approximately 2.75% on the 40% SBA-backed portion of the loan.

Other Loan Fees to Expect

Beyond the SBA guarantee fee, there are standard fees that come with obtaining any type of business loan. All regulated by the federal government under §120.221.

These costs are assessed only if and when you receive a commitment letter from one of our banks, ensuring you don’t pay unnecessary fees upfront.

These vary based on your lender and the specifics of your loan, but may include:

Lender Processing Fees: The lenders BFG works with do not charge processing fees for reviewing your application. However, they may pass along third-party costs incurred during the loan process
- Credit reports and background checks
- UCC searches: to check for existing liens on business assets
- Third-party reports: such as business valuations, environmental reports, or title searches
Appraisals: If you’re buying real estate or putting up personal real estate as collateral, an appraisal is typically required
Insurance: Lenders / SBA require insurance on all business assets, specified by the type of loan you will have, see more: §120.160
Legal fees: Some lenders charge a flat legal review fee, often around $2,500, while others may adjust based on loan complexity.
Mortgage recording tax: If applicable in your city or state.

Other key SBA terms

Understanding key SBA loan terms can help you navigate the borrowing process with confidence.

Personal guarantees

For all SBA loans, any business owner with a 20% or greater ownership stake must personally guarantee the loan. This means they are personally responsible for repayment if the business is unable to meet its obligations.

Collateral requirements:

Collateral helps secure the loan, and requirements vary based on the loan amount:

For 7a loans under $500,000: The SBA allows lenders to decide whether additional collateral is necessary.
For 7(a) loans over $500,000: The SBA requires lenders to make every effort to fully secure the loan. This means that all available collateral from any owner with 20% or more ownership must be pledged—typically real estate.
SBA 504 Loans: Typically, no additional outside collateral is required beyond the financed property or equipment.

Secure Affordable Financing With Low Rates & Long Terms

SBA loans offer some of the best financing terms available to small businesses, with low interest rates and extended repayment periods that help manage cash flow and growth.

At BFG, we specialize in helping business owners secure affordable, long-term financing through SBA loans.