Current SBA Loan Rates

For many small-business borrowers, government-backed loans are the holy grail. SBA loan interest rates are some of the most competitive among lenders.

So keeping up on the Small Business Administration’s terms and rates is part of a smart approach to finding a business loan. The 7(a) loan is the SBA’s most popular product and offers a flexible sum of cash for a variety of uses, including managing daily operations, purchasing new products and refinancing high-interest loans. Business borrowers also find low-cost financing for land and other major purchases with SBA 504 loans.

The SBA sets interest rate guidelines for lenders, which helps keep small-business owners’ borrowing costs low.

Here’s a breakdown of SBA business loan terms and rates, including interest and fees.

SBA loan rates

SBA 7(A) LOAN TERMS:

• 7(a) loans do not have a minimum loan amount and max out at $5 million. The average SBA loan was around $374,000 in 2015.
• The SBA guarantees 85% of your loan if it’s less than $150,000 and 75% if it’s more than $150,000. However, it limits guarantees to $3.75 million.
• SBA loans aren’t easy to qualify for. Read up on the qualifications for SBA loans to make sure they’re right for you.

SBA 7(A) INTEREST RATES:

7(A) LOANS REPAID IN LESS THAN 7 YEARS

Loan size	$25,000 or less	$25,001 - $50,000	More than $50,000
Maximum interest rate	*Prime + 4.25%	*Prime + 3.25%	*Prime + 2.25%

7(A) LOANS REPAID IN MORE THAN 7 YEARS

Loan size	$25,000 or less	$25,001 - $50,000	More than $50,000
Maximum interest rate	*Prime + 4.75%	*Prime + 3.75%	*Prime + 2.75%

*The prime rate, hiked on Dec. 17, 2015, is 3.5%.

Example: The maximum interest rate for an SBA loan of $25,000 or less, paid in less than seven years, is 7.75%.

But interest rates make up only part of your expenses. Your APR reflects your true cost of borrowing, including your interest rate and all fees associated with the loan.

How SBA loan rates are set: Interest rates for SBA 7(a) loans are the daily prime rate, which changes based on actions taken by the Federal Reserve, plus a lender spread. The spread is negotiated between the borrower and the lender, and can result in either fixed or variable interest rates. However, the SBA caps the maximum spread lenders can charge based on the size and maturity of the loan.

A lender providing an SBA loan may also calculate interest rates using the one-month London Interbank Offered Rate plus 3% or the SBA’s optional peg rate instead of the daily prime rate.

GUARANTY FEES

7(a) loan guaranty fees are based on the loan amount and maturity date and apply only to the guaranteed portion of the loan. Lenders are required to pay the SBA the guaranty fee, but some pass the expense on to you. However, the SBA limits the maximum amount you will be charged.

You’ll pay no guaranty fee if your loan is less than $150,000. If it’s more than $150,000 and matures in less than a year, you’ll see a 0.25% guaranty fee.

If your loan is for more than $150,000 and takes more than a year to mature, you’ll be charged based on a three-tier system:

• 3% on loans of between $150,000 and $700,000
• 3.5% on loans of between $701,000 and $1 million
• 3.75% on loans of more than $1 million

CDC/504 loans

Business borrowers looking to buy land, buildings or major equipment with long-term, fixed-rate financing can apply for SBA 504 loans. These loans are partially funded by certified development companies, nonprofit organizations focused on community economic development. The loans require collateral, typically the assets that are being financed, as well as personal guarantees from the principal borrowers.

504/CDC SBA LOAN TERMS

• 504 loans are available in 10- or 20-year terms: As of March 2016, 10-year term loans had an effective interest rate of 4.33% and 20-year term loans had an effective interest rate of 4.55%.
• Fee percentages are fixed but reset every five years based on principal, often resulting in a lower payment for the borrower.
• The minimum loan amount is $50,000; the maximum is $5.5 million.

How 504 loan rates are set: Small-business owners seeking a 504 loan are on the hook for a down payment of at least 10% of the cost of the project. A traditional lender, such as a bank, puts up 50% of the loan, and a certified development company puts up as much as 40%. The SBA guarantees 100% of the CDC portion of the loan.

SBA 504 loan terms are primarily made up of the following:

• The Treasury bond rate: Loans with 10-year terms are priced based on the five-year Treasury bond, while loans with 20-year terms are based on the 10-year Treasury bond.
• A guaranty fee that is paid to the SBA.
• A servicing fee that is paid to the CDC.
• A fee paid to the central servicing agent.

When applying, you’ll be quoted an effective interest rate, which is the sum of those three fees and the Treasury bond rate. However, you’ll also pay a one-time fee of 2.15% to the SBA, as well as some additional fees, meaning your total cost of borrowing (or annual percentage rate) will be slightly higher than your effective rate.

The bottom line on SBA loan rates

SBA loans give you the best interest rates, though the application process can be complicated and time-consuming. If you find yourself in need of money fast, numerous online lenders can help you get the capital you need. However, they have less favorable APRs.

Find and compare small-business loans

If SBA loans aren’t the right fit, compare other small-business loans to meet your needs and goals using our tool. We gauged lender trustworthiness, market scope and user experience, among other factors, and filtered lenders by categories that include your revenue and how long you’ve been in business.

Compare business loans

Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm.

To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

This post has been updated. It was originally published Jan. 8, 2016.

from NerdWallet
http://www.nerdwallet.com/blog/small-business/sba-loan-rates/