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The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a) loans.
7(a) loans have a maximum loan amount of $5 million. SBA's maximum exposure is $3.75 million ($4.5 million under the International Trade Loan). Thus, if a business receives an SBA-guaranteed loan for $5 million, the maximum guaranty to the lender will be $3.75 million or 75 percent. The guaranty percentage varies depending on the size and program type,
SBAExpress loans have a maximum loan amount of $350,000.
SBA Export Express Loans have a maximum loan amount of $500,000.
SBA loan programs are generally intended to encourage longer-term small business financing. Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate, 10 years for equipment (or demonstrated useful life), and terms for a working capital or inventory loan should be appropriate to the borrower’s ability to repay, up to 10 years.
The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets, in no instance to exceed 25 years. The 25-year maximum will generally apply to the acquisition and/or improvements of land and buildings or the refinancing of debt incurred in their acquisition. Where business premises are to be constructed or significantly renovated, the 25-year maximum would be in addition to the time needed to complete construction. (Significant renovation means construction of at least one-third of the current value of the property.)
When loan proceeds will be used for a combination of purposes, the maximum maturity can be a blended maturity based on the use of proceeds or up to the maximum for the asset class comprising the largest percentage of the use of proceeds.
Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged to the prime rate, the LIBOR rate, or an optional peg rate. Interest rates may be fixed or variable. These are the interest rates for fixed rate loans:
- Fixed rate loans of $50,000 or more must not exceed the base rate plus 2.25 percent if the maturity is less than seven years, and the base rate plus 2.75 percent if the maturity is seven years or more.
- For loans between $25,000 and $50,000, maximum rates must not exceed the base rate plus 3.25 percent if the maturity is less than seven years, and the base rate plus 3.75 percent if the maturity is seven years or more.
- For loans of $25,000 or less, the maximum interest rate must not exceed the base rate plus 4.25 percent if the maturity is less than seven years, and the base rate plus 4.75 percent, if the maturity is seven years or more.
- For SBA Express and Export Express loans $50,000 or less, the maximum interest rate must not exceed the Prime rate plus 4.5%, regardless of time of maturity.
Variable rate loans may be pegged to the lowest prime rate, the LIBOR Rate, or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the Federal Register. The lender and the borrower negotiate the amount of the spread, which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must not be more often than monthly and it must be consistent (e.g., monthly, quarterly, semiannually, annually, or any other defined period).
Percentage of Guaranty
SBA can guarantee up to 85 percent of loans of $150,000 and less, and up to 75 percent of loans above $150,000. This standard applies to most variations of the 7(a) Loan Program. However, SBAExpress loans carry a maximum of 50 percent guaranty and Export Express loans carry a maximum 90 percent guaranty. The Export Working Capital Loan Program and International Trade Loans carry a maximum of 90 percent guaranty, up to a guaranteed amount of $4,500,000.
To offset the costs of its loan programs to the taxpayer, SBA charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees is based on the guaranty portion of the loans. The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to SBA and has made the first disbursement of the loan. The lender's annual service fee to SBA cannot be charged to the borrower.
For loans approved on or after October 1, 2013, the following fee structure applies:
- For loans of $150,000 or less, a zero percent guaranty fee will be charged.
- For loans more than $150,000 but up to and including $700,000, a 3 percent guaranty fee will be charged.
- For loans greater than $700,000, a 3.5 percent guaranty fee will be charged.
- For loans greater than $1,000,000, an additional 0.25 percent guaranty fee will be charged for that portion greater than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5 percent guaranty fee; the portion greater than $1,000,000 would be charged at 3.75 percent.
The annual on-going servicing fee for all 7(a) loans approved on or after October 1, 2013, shall be 0.520 percent of the outstanding balance of the guaranteed portion of the loan. The legislation provides for this fee to remain in effect for the term of the loan.
As of October 1, 2004, Combination Financing is no longer allowed.
Processing fees, origination fees, application fees, points, brokerage fees, bonus points, and other fees that could be charged to an SBA loan applicant are prohibited. The only time a commitment fee may be charged is for a loan made under the Export Working Capital Loan Program.
For loans with a maturity of 15 years or longer, prepayment penalties apply when:
- the borrower voluntarily prepays 25% or more of the outstanding balance of the loan; and
- The prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.
The prepayment fee is:
- During the first year after disbursement, 5 percent of the amount of the prepayment;
- During the second year after disbursement, 3 percent of the amount of the prepayment;
- During the third year after disbursement, 1 percent of the amount of the prepayment.