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SBA loans are incredibly popular because they are known for offering some of the best rates in the market. In 2020, SBA lending reached a record high. The SBA closed nearly nine million loans, totaling $750 billion in value.
How Much Does an SBA Loan Cost?
The cost of an SBA loan depends on various factors. Different types of SBA loans come with a range of terms and interest rates. Currently, small businesses in the U.S. can borrow up to $5 million with repayment terms extending as long as 25 years. However, standard 7(a) SBA loans typically have terms of 10 years.
What Are the Typical Closing Costs for an SBA Loan?
When calculating the cost of an SBA loan, you need to consider more than just the interest rate. Additional closing costs will also apply, which may sometimes be included in the total loan amount or may need to be paid upfront to secure the loan. Below are some typical closing costs you can expect when obtaining an SBA loan:
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Packaging Fees ($2,500 – $5,000): Preparing and organizing paperwork, along with conducting background and credit checks, incurs costs for the lender. These expenses are typically covered by a packaging fee, which the lender requires during the due diligence period before loan approval. This fee, usually ranging from $2,500 to $5,000, must be paid prior to closing. However, it may be refunded—or portions of it may be refunded—if the loan does not close due to reasons unrelated to the borrower misrepresenting information.
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Appraisal Fees ($1,250 to $5,000): If you’re using property or another asset as collateral for your loan, an appraisal is required. Fees can vary significantly depending on the location. For example, in Illinois, commercial real estate appraisals typically range from $1,250 to $5,000.
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Business Valuation Fees ($5,000 to $30,000): If you’re using your SBA loan to purchase a business, that business must be appraised. Business valuation fees vary based on the type of business and the complexity of the valuation, typically ranging from $5,000 to $30,000.
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Environmental Report Fees ($2,000 to $3,000): If your loan involves a commercial real estate purchase, your lender will likely require an environmental report. This report identifies any environmental risks that could impact the property’s future value. These surveys generally cost between $2,000 and $3,000.
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Title Fees ($1,000 to $2,000): If you’re investing in real estate for your business, you’ll need to ensure the property has a clean title before purchasing. Fees for title searches and filing your new title at closing typically range from $1,000 to $2,000.
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Attorney Fees ($2,000 to $3,000): Given the extensive paperwork involved in taking out a loan, you’ll need an attorney to review the documents. Attorney fees for evaluating your loan documents typically range from $2,000 to $3,000.
SBA Loan Fee Calculator
If you’re considering an SBA loan, you can estimate the fees, which are typically between 3% and 4% of the total amount borrowed. Here’s an example of how to calculate your SBA fees for a $1 million loan:
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$1,000,000 loan x 75% (portion of the loan guaranteed) = $750,000
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$750,000 x 3.5% SBA fee = $26,250 loan cost
This calculation provides a clear estimate of the fees you might expect to pay for an SBA loan.
