SBA 7(a) loan closing costs often confuse small business owners seeking funding. These expenses can add up quickly, impacting the total amount borrowed. This guide breaks down the various fees and charges associated with SBA 7(a) loans. It provides clear explanations to help borrowers understand and prepare for these costs. Ready to demystify SBA 7(a) loan closing costs?
Key Takeaways of SBA 7a Loan Closing Costs
- SBA 7(a) loan closing costs typically range from 3-4% of the total loan amount.
- Guarantee fees, a major part of closing costs, are waived for loans up to $1 million as of October 1, 2023.
- Packaging fees for SBA 7(a) loans usually cost between $2,500 to $5,000.
- Appraisal fees for property valuations can range from $1,250 to $5,000.
- Borrowers should factor in various costs like guarantee fees, business valuation, title fees, attorney fees, and lender’s legal fees when calculating total closing costs.
Breakdown of SBA 7(a) Loan Fees
SBA 7(a) loan fees can vary based on the loan amount and term. These fees include guarantee fees, packaging fees, and appraisal fees, which borrowers must pay to secure their loan.
Guarantee Fees
Guarantee fees constitute a significant portion of SBA 7(a) loan closing costs. These fees are adjusted annually based on loan size and term. For loans up to $1 million, borrowers incur no guarantee fee as of October 1, 2023. Larger loans have tiered rates, with fees ranging from 1.45% to 3.75% of the loan amount.
Borrowers should consider these fees when planning their loan. For instance, a $1.5 million loan with a 10-year term would have a total guarantee fee of $16,625. This cost contributes to the overall expense of obtaining an SBA 7(a) loan, which typically amounts to 3-4% of the borrowed sum.
Packaging Fees
Packaging fees are a typical expense in SBA 7(a) loans. Lenders or third-party service providers impose these charges for preparing and submitting loan applications. They cover the work required to collect and examine financial documents, business plans, and other necessary paperwork. The Small Business Administration (SBA) permits reasonable packaging fees, which usually range from $2,500 to $5,000.
Business owners should be aware that packaging fees can differ based on loan size and complexity. Some lenders may incorporate these costs into their overall fees, while others charge them separately. It’s prudent for borrowers to inquire about packaging fees in advance and compare offers from various lenders. This helps ensure they’re receiving a fair deal and can plan for all loan-related expenses.
Appraisal Fees
Appraisal fees are a key part of SBA 7(a) loan closing costs. These fees pay for a pro to check the value of any property used as loan security. The cost can range from $1,250 to $5,000, based on the property’s size and type. Business owners should plan for this expense when seeking an SBA 7(a) loan.
Lenders need appraisals to make sure the property’s value matches the loan amount. This step helps protect both the lender and the borrower. The U.S. Small Business Administration requires these checks to ensure fair lending practices. Borrowers can often roll the appraisal fee into their total loan amount, easing the upfront cost burden.
How to Calculate Your Total SBA 7(a) Loan Closing Costs
Calculating SBA 7(a) loan closing costs helps borrowers plan their finances. Here’s a step-by-step guide to figure out the total costs:
- Start with the loan amount: Begin by noting down the total loan amount you’re seeking. For example, a $1 million loan.
- Calculate the guarantee fee: This fee varies based on the loan amount. For a $1 million loan, the fee would be $26,250.
- Add business valuation costs: These can range from $5,000 to $30,000, depending on the size and complexity of the business.
- Include title fees: Expect to pay between $1,000 to $2,000 for title insurance and related costs.
- Factor in attorney fees: Legal costs typically fall between $2,000 to $3,000 for SBA loan closings.
- Consider appraisal costs: Real estate appraisals may be needed if the loan involves property purchases.
- Account for lender’s legal fees: These fees cover the lender’s costs for document preparation and review.
- Include application and credit report fees: These are usually smaller amounts but should still be factored in.
- Check for any prepayment penalties: Some loans may have fees for early repayment.
- Add up all costs: Sum all the above fees to get your total SBA 7(a) loan closing costs.
- Review the Loan Estimate: This document from your lender will outline all expected costs.
- Compare with the Closing Disclosure: Before finalizing, check this document against your calculations for accuracy.
Frequently Asked Questions About SBA 7a Loan Closing Costs
1. What are SBA 7(a) Loan Closing Costs?
SBA 7(a) loan closing costs are fees borrowers pay when finalizing their small business loans. These costs can include appraisals, business valuations, credit checks, and other charges related to securing the loan.
2. How Do Interest Rates Affect SBA 7(a) Loan Costs?
Interest rates play a big role in the total cost of SBA 7(a) loans. They impact your monthly payments and the overall amount you’ll repay. Rates can be fixed or variable, affecting your long-term expenses.
3. Can I Finance The Closing Costs of an SBA 7(a) Loan?
Yes, in many cases, you can roll the closing costs into your SBA 7(a) loan. This means you won’t need to pay them upfront. But remember, this will increase your total loan amount and interest paid over time.
4. What’s The Loan-To-Value Ratio for SBA 7(a) Loans?
The loan-to-value ratio for SBA 7(a) loans can go up to 90% for commercial real estate. This means you might only need a 10% down payment. The exact ratio depends on factors like your business type and the lender’s rules.
5. Do SBA 7(a) Loans Require Collateral?
SBA 7(a) loans often need collateral, which can be business assets or personal property. The amount of collateral depends on the loan size and your business’s financial health. Some loans might need a second lien on your home.
6. How Does The Debt Service Coverage Ratio Affect My SBA 7(a) Loan?
Your debt service coverage ratio shows if your business can repay the loan. Lenders use this to gauge risk. A higher ratio means better chances of approval and possibly lower interest rates. It’s a key factor in the loan process.
Conclusion and Summary of SBA 7a Loan Closing Costs You Should Know
SBA 7(a) loan closing costs can be intricate, but they’re manageable with proper understanding. Borrowers who grasp these fees can plan more effectively and avoid unexpected expenses.
Careful preparation helps businesses secure funding without overspending. Disaster Loan Advisors (DLA) can assist owners through the process, streamlining it. Armed with this knowledge, small business owners can confidently pursue SBA loans to expand their ventures.
Fuel Your Business Growth with the SBA 7(a) Loan Program: Flexible Funding for Small Businesses!
The SBA 7(a) Loan Program is a versatile financing solution designed to meet the diverse needs of small business owners. Whether you need working capital, funds for expansion, or resources to refinance debt, this program provides the support to help your business thrive.
With the SBA 7(a) Loan Program, you can:
- Access Up to $5 Million for a variety of business purposes.
- Benefit from Competitive Interest Rates and flexible terms.
- Use Funds for Working Capital, Real Estate, Equipment, or Debt Refinancing.
- Enjoy a streamlined application process with support for small business needs.
Eligible Uses for SBA 7(a) Loans:
- Working capital to manage operations and growth.
- Purchasing real estate or long-term leasehold improvements.
- Buying equipment, machinery, or inventory.
- Refinancing existing business debt for better terms.
The SBA 7(a) Loan is tailored to empower small business owners with the flexibility and funding needed to achieve your goals.
Don’t Let Funding Challenges Hold You Back. Take Action Today!Want to discuss if the SBA 7(a) Loan program is right for your business? Schedule Your Free Consultation to see how we can help.
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