Linda McMahon
SBA Administrator
IS THE SBA GUARANTEE FEE A GOOD VALUE COMPARED TO CONVENTIONAL LOAN FEES?
The majority of SBA-Capital’s lending consist of SBA vs. Conventional loans because the SBA terms and conditions are more favorable to the borrower. Per the Small Business Administration’s website “SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans.”
Limiting the lenders loss to 25% has encouraged Banks to loan over $23 billions of dollars annually to borrowers seeking financing to purchase or grow their business.
Conventional lenders charge loan origination fees vs. SBA Guaranty Fees. The “real cost” of the SBA Guaranty Fee is calculated as illustrated below.
Our example will be a $3M 80% LTV SBA 25-year loan.
First, take 75% of the $3M loan amount (equates to $2,250,000), then multiply the first $1M by 3.5% = $35,000 fee and the remaining $1,250,000 by 3.75% = $46,875 leaves a remaining fee of $81,875 or 2.73% of the $3M loan.
The real cost of the guaranty on a $3M loan is $81,875
Typically, you get the following response as you research the two loan options:
- SBA 7a routinely offers 80% loans for 25 Years with 20% down and a Guaranty Fee of 2.73% as described above on a $3M loan.
- Conventional lenders typically offer 65% LTV for 5-year financing with an origination fee ranging from 2 to 4%. (confirm with your conventional lender)
- SBA allows you to finance Closing Cost, Guaranty Fee, and Working Capital. Most Conventional lenders typically require the Borrower to pay all closing cost out of pocket and Working Capital is typically not allowed.
After you calculate the “real cost” of the Guaranty Fee and compare to the Conventional loans Origination Fee, you may determine there is very little difference in cost if any. In addition, the availability of SBA loans makes it possible for borrowers to secure loans that may otherwise not be available to purchase and expand their business plus create jobs and grow the economy.
See additional loan information, how to raise equity and more on our blog.
If you would like SBA and Conventional loan information about your specific financing needs, please contact Hershel Pierce at 214-726-900 or pierce.bank@gmail.com