SBA slashes loan fees for FY2024
Exciting news came out recently for the benefit of small business owners seeking to leverage the SBA 7(a) loan program. Specifically, the SBA has just released the updated guaranty fee schedule for loans approved in fiscal year 2024 (Oct 1, 2023 – Sep 30, 2024), reducing loan fees to zero in some cases! These changes reduce fees to levels far lower than historical averages and allow business owners to access capital and the benefits of SBA financing at an even lower cost.
What is the guaranty fee?
The SBA’s flagship 7(a) loan program is primarily operated through the one-time guaranty fees paid by borrowers at origination. The guaranty fee is based on a tiered formula based on loan amount and guarantee percentage, and the fee is updated by the SBA from time to time. These funds are used to partially guaranty against lender losses in a case of a default, and promote lenders approving loans that typically are unavailable conventionally.
How is it changing?
Currently, through September 30, 2023, loans up to $500,000 have zero guarantee fees. Effective October 1st, that guarantee fee waiver applies to loan amounts up to $1 million!
Furthermore, the new fee structure reduces the guaranty fee to less than half for loan amounts above $1 million but not exceeding $2 million.
Guaranty fees for loans exceeding $2 million remain unchanged.
The Math
Upfront Guaranty Fees for loans with terms exceeding 12 months are:
For Loans of $1,000,000 or less: 0.00%
For loans of $1,000,001 to $2,000,000: 1.45% of the guaranteed portion of the loan up to and including $1,000,000, plus 1.70% of the guaranteed portion of the loan over $1,000,000.
For loans $2,000,001 and greater: 3.50% of the guaranteed portion of the loan up to and including $1,000,000, plus 3.75% of the guaranteed portion of the loan over $1,000,000.
In general, most SBA 7(a) loans are 75% guaranteed and below are examples of guarantee fees before and after the change.
| Loan Amount | Guaranty fee through 9/30/2023 | Guaranty fee on or after 10/1/2023 |
|---|---|---|
| $500,000 | $0 | $0 |
| $1,000,000 | $11,250 | $0 |
| $2,000,000 | $53,750 | $23,000 |
| $3,000,000 | $81,875 | $81,875 |
*Above examples assume the loan has a maturity exceeding 12 months and a guarantee of 75%
Conclusion
As illustrated above, the new changes to SBA fee schedule saves up to tens of thousands of dollars for many prospective new SBA borrowers. This further adds to the appeal of the many benefits offered by SBA loan programs including low down payments, lower monthly payments, longer terms, and greater access to capital versus conventional financing.
If you’ve been on the fence about leveraging the SBA 7(a) loan program, this might be the best time to take advantage and grow your business!