There are 2 main types of SBA loans that are used by many small businesses. SBA 7(a) loans are flexible and can be used for various business-related purposes. CDC / SBA 504 loans can be used for the purchase of fixed assets, such as real estate and long-lasting equipment or machinery. These 2 loan options have SBA loan rates that fluctuate depending on market conditions.
SmartBiz offers SBA 7(a) loans for working capital from $30k – $350k and commercial real estate loans from $500k – $5 million. Current interest rates start as low as 5.75%. You can get prequalified online in minutes.
Current SBA 7(a) Loan Rates and Fees
The maximum loanable amount for an SBA 7(a) loan is $5,000,000. The actual interest rates of an SBA 7(a) loan is subject to SBA maximums and negotiated between the borrower and the lender. Typically, the range of rates are currently between 6.25% – 8.75% and based on the amount of the loan and the length of its term.
Maximum Interest Rates Table for SBA 7(a) Loans as of June 2017
|Loan Amount||Term: 1 - 7 Years||Term: 7+ Years|
|Less than $25,000||Base Rate: 4% + Spread: 4.25%|
Total Rate: 8.25%
|Base Rate: 4% + Spread: 4.75%
Total Rate: 8.75%
|Between $25,000 to $50,000||Base Rate: 4% + Spread: 3.25%|
Total Rate: 7.25%
|Base Rate: 4% + Spread: 3.75%
Total Rate: 7.75%
|Over $50,000||Base Rate: 4% + Spread: 2.25%|
Total Rate: 6.25%
|Base Rate: 4% + Spread: 2.75%
Total Rate: 6.75%
The maximum interest rate on an SBA 7(a) loan is based on three factors:
- The base rate
- The loan term (either less than 7 years or more than 7 years)
- The loan amount (either below $25,000, between $25,000 to $50,000, or over $50,000)
The current SBA loan rates for SBA 7(a) loans range from 6.25% to 8.75%. The SBA sets the maximum interest rates that a lender’s allowed to charge the borrowers of a 7(a) loan. Both fixed and variable rates are available.
For SBA 7(a) loans with a fixed interest rate, the rate remains constant throughout the life of the loan until it’s fully paid. With a variable interest rate, the rate can change or reset at regular intervals such as monthly, quarterly, or semi-annually.
As part of the base interest rate, SBA 7(a) lenders are allowed to also add a spread that increases the overall base interest rate. The typical spread is between 2.25% – 4.75% above the base rate. Common base rates include the following:
- Prime rate
- LIBOR (one month) + 3%
- SBA Peg Rate
On top of these base rates, lenders will sometimes add a spread, thus arriving at the final SBA 7(a) interest rate. The allowable spread is based on the term of the loan as well as the loan amount. The table below shows the allowable maximum spread which lenders can add to the base rate.
Maximum SBA 7(a) Interest Rate Spreads as of July 2017
|SBA 7(a) Loan Terms||Allowable Additional Spread for loans over $50,000||Allowable Additional Spread for loans between $25,000 to $50,000||Allowable Additional Spread for loans less than $25,000|
|Less than 7 years||2.25% maximum||3.25% maximum||4.25% maximum|
|7 years or more||2.75% maximum||3.75% maximum||4.75% maximum|
When you look at the table above, it’s important to notice the following:
- Loans with term 7 years or more have interest rates that are 0.5% higher than loans below 7 years
- Loans below $25,000 have a 1% higher maximum interest rate when compared to loans between $25,000 to $50,000.
- Loans between $25,000 to $50,000 have a 1% higher maximum interest rates when compared to loans with amounts over $50,000.
For SBA 7(a) loans with smaller amounts, most lenders offer a variable interest rate. These rates can go up or down depending on market conditions. Simply put, as market interest rates rise, so will the rate of the loan. Conversely, larger SBA 7(a) loans have a fixed interest rate and aren’t dependent on market conditions.
Current SBA 7(a) Loan Other Costs
Interest rates are not the only costs to borrowing money. There are other fees that you need to know and consider, including an origination fee and guarantee fee. Let’s take a moment to look at these fees in greater detail.
- Origination fee – This fee is set by lenders to cover the costs of creating the loan, typically around 3% – 4% of the loan amount. This is usually taken directly out of the loan, requiring borrowers to cover the total amount of the fee.
- Guarantee fee – This fee is based on the term of the loan and the amount guaranteed, not on the total loan amount. Currently, the SBA doesn’t have a guarantee fee for loans below $150,000. Usual guarantee fees range from 3% to 3.5% of the guaranteed portion of a loan above $150,000. Remember that the SBA guarantees 85% of a loan below $150,000 and 75% of a loan above it.
Percentage of SBA 7(a) Guarantee
|Loan Amount||SBA Guarantee Percentage|
|$150,000 and below||85%|
|More than $150,000||75%|
Current CDC / SDA 504 SBA Loan Rates and Fees
The maximum loan amount for CDC / SBA 504 is between $5 million – $5.5 million. The minimum loan amount is $50,000. A CDC / SBA 504 loan is actually composed of 2 loans, one from a conventional lender and one from a certified development company. This creates the following 2 liens.
- The first lien is a loan from a conventional lender (such as a bank) which typically covers up to 50% of the property or equipment
- The second lien is a loan from a CDC (Certified Development Company) which covers up to 40% of the value of property or equipment
The remaining 10% is paid by the borrower as a down payment. Current SBA loan rates on a CDC / SBA 504 loans are dependent on the liens from the conventional lender and the CDC. Typically, both portions will have their own interest rates. A CDC will usually peg their interest rate to the current 5- to 10-year treasury yield while a conventional lender’s rates are more variable.
Maximum CDC Interest Rates as of June 2017
|Loan Term||Treasury Rate||Fixed Rate||Ongoing Fees||Maximum Interest Rate|
|10 years||5-year treasury (present rate: 1.76%)||0.38%||Estimated 1.7%||1.76% 5-year Treasury rate + 0.38% fixed rate + 1.7% ongoing fees = 3.84%|
|20 years||10-year treasury (present rate: 2.21%)||0.48%||Estimated 1.7%||2.21% 10-year Treasury rate + 0.48% fixed rate + 1.7% ongoing fees = 4.39%|
- The 10-year CDC/SBA 504 has a maximum interest rate based on the combined rates of the 5-year treasury market rate, a fixed rate of 0.38%, and ongoing annual fees equal to approximately 1.7%.
- The 20-year CDC/SBA 504 has a maximum interest rate based on the combined rates of the 10-year treasury market rate, a fixed rate of 0.48%, and ongoing annual fees equal to approximately 1.7%.
The interest rate for the conventional lender’s portion of the loan is not set by SBA, but it is usually low (typically in the mid-single digits). This is because the conventional lender has the first lien on the collateral of the loan and there is therefore lower risk of default.
The rates for the CDC portion of SBA 504 are fixed for the entire term of the loan. However, the portion of the loan taken from a conventional lender may have fixed or variable rates.
SBA loans provide competitive interest rates and are typically recommended for businesses that meet the following general requirements:
- In business for 2+ years
- Business owner has a personal credit score of at least 680
- Business has revenues of at least $50,000 over the past year
- The Business is profitable
With the SBA guarantee, it’s comparatively easier for small businesses to get approved for financing, especially for loans with a small amount (less than $350,000). The two types of SBA loans that a small business typically qualifies for are SBA 7(a) loans and CDC / SBA 504 loans. Both have SBA loan rates that change depending on market conditions.
SmartBiz offers SBA 7(a) loans for working capital between $30k – $350k and commercial real estate loans between $500k – $5 million. Current interest rates start as low as 5.75%. You can get prequalified online in a matter of minutes.