The Cost of A Small Business Loan: SBA Guarantee Fees

Learn about another aspect of small business loans, the SBA guarantee fee.

For many small business owners, SBA financing is the perfect way to finance a new business venture or the expansion that comes as a result of rapid growth. I encourage potential small business loan applicants to consider the costs associated with and SBA loan and make a decision as to whether it is the best option for their business at the present time.

SBA financing can be an attractive option for new business owners, because there is quite a bit of flexibility when it comes to what the loan can be used for. An SBA loan can be used for any of the following business-related costs:

• To buy, construct, or remodel commercial real estate
• Purchase new equipment
• Acquire a business or buy out a partner
• Create working capital for expansion
• Refinance or restructure existing debt

While an SBA loan through the U.S. Small Business Administration offers a lot of opportunity for the borrower, he or she must understand the costs associated with the loan as well. For example, small business owners must repay the SBA guarantee fee. As a Preferred Lender, MCCU can assume more risk than a standard bank since all of its small business loans are between 75 and 85 percent government guarantee. This helps many small business owners who would not normally qualify for SBA financing receive a small business loan. With this loan, the borrowers are required to pay an SBA guarantee fee, which comes out to around 2.5% on the standard loan. This can be financed into the loan so that it does not become an out-of-pocket cost, but the small business owner must understand how and why the fee exists and their resulting responsibilities.