SBA to Extend no Upfront-fee Loans Offer to Borrowers Seeking $150K or Less

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Created on October 1, 2014

Veterans Advantage program also extended, expanded to loans up to $5 million

Good news for entrepreneurs seeking SBA financing to purchase or grow a small business. The SBA will continue its provision to eliminate the upfront fee paid by all borrowers for the guaranteed portion of 7(a) loans of $150,000 or less, and will expand the no upfront-fee program for veteran-owned small businesses, through Sept. 30, 2015. 

Before this change, borrowers using the SBA guarantee through participating lenders would pay up to two percent of the guaranteed portion on these loans, which would cost a small business owner up to $2,700 in fees.

However, if two or more SBA guaranteed loans are approved within 90 days of each other, the guaranty fee is determined based on the aggregate amount of the loans. Thus, if the total amount of multiple loans approved within 90 days is greater than $150,000, the normal fees will apply. Lenders are not permitted to split loans for the purpose of avoiding fees for their small business borrowers.

Participating lenders also will continue to see a break; the SBA will eliminate the servicing fee paid by them each month on loans $150,000 or less. The servicing fee paid by lenders each month on 7(a) loans greater than $150,000 will drop to 0.519 percent on the guaranteed portion of the outstanding balance beginning Oct. 1, 2014.

The upfront guaranty fee for 7(a) loans above $150,000 will depend on the loan amount and the maturity of the loan. For loans with a maturity that exceeds 12 months, the applicable guaranty fees remain three percent up to $700,000, 3.5 percent up to $5 million; that portion over $1 million will be at 3.75 percent. For loans with a maturity of 12 months or less that are over $150,000, the guaranty fee remains 0.25 percent. Also, there are no changes to loans approved under the SBA's 504 program; the annual fee remains 93.75 basis points of the outstanding balance of the loan, and the one-time guaranty fee stays at 50 basis points.

For qualified veteran-owned small businesses, the up-front guaranty fee on SBA Express loans is waived for loans of $350,000 or less. For 7(a) loans outside the Express program, upfront fees continue to be waived for loans of $150,000 or less. For loans of more than that amount, up to $5 million, with a maturity in excess of 12 months, the no upfront-fee will drop by 50 percent using this formula:  For loans of $150,001 to $700,000: 1.5% of the guaranteed portion; For loans of $700,001 to $5,000,000: 1.75% of the guaranteed portion up to $1,000,000, plus 1.875% of the guaranteed portion over $1,000,000.For loans with a maturity of 12 months or less, veteran-owned small business can expect to pay an upfront fee of 0.125% of the guaranteed portion.

In order to qualify for SBA Veterans Advantage, businesses must be 51 percent or more owned and controlled by an individual or individuals in one or more of the following groups, and provide verifying documentation: Veterans (other than dishonorably discharged); Service-Disabled Veterans; Active Duty Military service member participating in the military’s Transition Assistance Program; Reservists and National Guard Members; or Current spouse of any Veteran, Active Duty service member, or any Reservist or National Guard member; or widowed spouse of a service member who died while in service or of a service-connected disability. 

For more information, contact a MBDA Business Center near your business.

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