What is the SBA guarantee fee, and how much is it?

It is a one-off fee the SBA charges for standing behind part of your loan, and the single most misunderstood number in the programme: it is charged on the guaranteed portion, not on the whole loan. On a $150,000 loan the SBA guarantees 85% — $127,500 — and the fee is $2,550.00, which is 1.70% of the money you actually borrowed. On $500,000 the guarantee drops to 75% and the fee is $11,250.00. Above $700,000 the rate steps again for the slice of the guaranteed portion over $1M, so a $1.5M loan pays $39,687.50 — a blended 3.528%. The tiers are set by SBA policy notice and change, so the calculator lets you type your own rate straight off a term sheet.

What are current SBA 7(a) interest rates?

Most 7(a) loans carry a variable rate quoted as a base rate — usually the prime rate — plus a spread negotiated with your lender, and the SBA caps how large that spread may be. The caps run wider on small loans, because the lender's cost of underwriting a $50,000 loan is much the same as underwriting a million-dollar one: broadly up to 6.5% over the base rate at $50,000 or less, tightening to about 3.0% above $350,000. A cap is a ceiling and not a quote — a strong file is priced below it. Because the rate floats, ask the lender what happens when prime moves: on the reference loan here, each point of prime adds about $361.44 to the monthly payment.

Can you get a 25-year SBA loan?

Only for owner-occupied commercial real estate. The programme ties the term to the useful life of whatever the money buys, so working capital, equipment and business acquisitions run on a ten-year schedule while a building can be financed over twenty-five. That is by far the biggest lever on the payment: $500,000 at 10.50% costs $6,746.75 a month over ten years and $4,720.91 over twenty-five — a 30% cut — but the interest bill rises from $309,610 to $916,273, an extra $606,663. If the deal includes both a property and working capital, lenders often blend the term across the two uses rather than granting twenty-five years on the whole loan.

How much of an SBA loan is guaranteed, and what does that mean for me?

The SBA guarantees 85% of loans at or below $150,000 and 75% above that, capped at $3,750,000 of guaranteed exposure on any single loan. The guarantee protects the lender, not you: if the business fails, the SBA reimburses the bank for its share of the loss and then pursues you under the personal guarantee you signed. What the guarantee buys the borrower is access — a bank that would decline the deal outright will write it with the government standing behind three quarters of the risk — plus longer terms and capped rates than the same credit profile would attract conventionally.

Should I roll the SBA guarantee fee into the loan or pay it at closing?

Financing it preserves cash at exactly the moment a business is least liquid, and that is usually the right call — but it is not free. On the reference loan the $11,250.00 fee raises the financed amount from $500,000 to $511,250, the payment from $4,720.91 to $4,827.13, and the lifetime interest by $20,616.13. Over twenty-five years you hand back about 2.8 times the fee to avoid writing the cheque today. Pay it in cash if the cash is genuinely spare; finance it if the alternative is a thin opening balance.

Is there a prepayment penalty on an SBA 7(a) loan?

Only on terms of 15 years or more, only in the first three years, and only if you prepay more than 25% of the outstanding balance inside a single year. The charge declines: 5% in year 1, 3% in year 2, 1% in year 3, and nothing after that. On the reference 25-year loan, clearing the $495,643 still outstanding at the end of year one would add $24,782.17. A ten-year working-capital or equipment loan carries no such charge at all, and regular extra principal never trips it — paying $500 a month extra here clears the loan 91 payments early and removes $325,568 of interest.

What is the difference between an SBA 7(a) loan and a 504 loan?

The 7(a) is the general-purpose programme: one lender, one loan, up to $5,000,000, usable for working capital, equipment, an acquisition, a property, or a refinance, normally at a variable rate. The 504 is a fixed-asset programme run as a three-way deal — a bank takes a first lien for about half the project, a Certified Development Company issues a debenture for about forty per cent, and you inject the rest — and it prices at a long fixed rate set when the debenture sells. Use the 504 when you are buying a building or heavy long-lived equipment and want rate certainty for twenty or twenty-five years; use the 7(a) when you need working capital, speed, or a single lender relationship.

What credit score and down payment do you need for an SBA loan?

Most 7(a) lenders look for a personal score around 680 and up, though the SBA itself sets no minimum and uses a separate small-business scoring model on smaller loans. Expect to inject equity rather than nothing: commonly around ten per cent on an acquisition or a start-up, sometimes less on an expansion where the business already has a trading history and collateral. Everyone owning twenty per cent or more of the business signs an unlimited personal guarantee, and on larger loans a lien on personal real estate is normal. A 7(a) loan cannot be declined for want of collateral alone, but a lender will take whatever there is.

Finance

SBA Loan Calculator

An SBA 7(a) payment is M = P·i/(1−(1+i)^−n) — the amount financed, the monthly rate, and the number of payments. What makes a 7(a) different is the rest: a variable rate quoted as prime plus your lender's spread, an upfront guarantee fee charged on the guaranteed portion rather than the whole loan, and a term that depends on what the money buys — ten years for working capital and equipment, twenty-five for owner-occupied real estate.

Your 7(a) loan

Loan amount

The gross 7(a) loan you are asking for

Use of proceeds

What the money buys sets the maximum term

Commercial real estate runs up to 25 years.

Term

Years to repay — the biggest lever on the payment

years

Base rate

The prime rate your note floats on

Lender spread

Points your lender adds over prime

At $500,000 the framework allows a spread of up to about 3.00% over the base rate (Above $350,000). Your spread is inside it.

Guarantee fee

Fee rate override

Leave blank to use the SBA tier table

Finance the feeRoll it into the loan instead of writing a cheque at closing

Extra monthly payment

Optional — extra principal paid every month

Monthly payment

$4,827.13

10.50% (prime 7.50% + 3.00%) · 25-year term · 300 payments

Principal $511,250Interest $936,88964.7% of everything repaid is interest

Guarantee fee

$11,250

Guaranteed portion

$375,000

Amount financed

$511,250

Cash at closing

Total interest

$936,889

Total repaid

$1,448,139

If prime rises

Rate	Payment	Change
10.50%	$4,827.13	—
11.50% (+1)	$5,196.70	+$369.57
12.50% (+2)	$5,574.44	+$747.31
13.50% (+3)	$5,959.36	+$1,132.23

Pay it off early

Terms of 15 years or more carry a declining charge. Clearing the $506,795 still owed at the end of year one would add $25,339.77 at 5%.

Try a scenario

Rates, fee tiers and guarantee percentages are set by SBA policy and move. Every one of them is editable above — treat the defaults as a starting assumption, not a quote, and check them against your term sheet. Guaranteed portions are capped at $3.75M.

No sign-up · Free

The basics

What is an SBA 7(a) loan?

It is an ordinary bank loan with an unusual backstop. You borrow from a bank or a non-bank lender, you repay that lender, and the Small Business Administration lends you nothing at all — it simply promises the lender that if the business fails, the government will cover most of the loss. That promise is what turns a decline into an approval, and everything odd about the programme follows from it.

M = P·i ÷ (1 − (1 + i)^−n)

An amortizing loan, like any other

One level payment every month until the balance reaches zero. Early payments are mostly interest on a large balance, later ones almost all principal. Nothing about the guarantee changes that arithmetic — it changes who bears the risk behind it.

$500,000 at 10.50% over 25 years → $4,720.91 a month

guaranteed, not lent

The government guarantees, the bank lends

The guarantee protects the lender. You still sign a personal guarantee, still pledge collateral where there is any, and still owe the money. What you get in return is access, a longer term, and a capped rate that the same file would not attract conventionally.

On $500,000 the SBA stands behind $375,000 and charges $11,250.00 for it

Method

How to price a 7(a) loan by hand

Six steps take you from a term sheet to the two numbers that matter: what leaves your account each month, and what the money really costs. The first two are the ones no ordinary loan calculator does.

1
Work out the guaranteed portion — the fee is charged on that, not the loan
The SBA guarantees a share of the loan, and the share is larger on small loans. Multiply the gross loan P by that percentage to get the base the fee is charged on. Missing this step is the single most common way people overstate the fee.
$500,000 × 75% = $375,000 guaranteed
2
Apply the fee tiers to that guaranteed portion
Each tier charges its own percentage, and on the largest tier the guaranteed portion splits at a million dollars with a higher rate above the split. Add the bands together for the upfront fee F.
$375,000 × 3.00% = $11,250.00
3
Decide whether the fee is financed, and fix the amount financed
Pay the fee at closing and the payment is calculated on the loan itself. Roll it in and the principal grows by F, so every future payment carries it. Both are allowed; the choice is a cash-flow one.
cash at closing → P = $500,000 · financed → P = $511,250
4
Build the rate from the base rate plus the lender spread
A 7(a) note is usually variable: the rate is a published base rate plus your lender’s spread, and the spread is capped by loan size. Divide the total by twelve for the monthly rate i, and multiply the term by twelve for n.
i = (7.50% + 3.00%) ÷ 12 = 0.00875 · n = 25 × 12 = 300
5
Apply the level-payment formula
The payment M is the one figure that drives the balance to exactly zero on the final payment. Multiply it by n for everything you hand back, and subtract P for the interest.
M = P·i ÷ (1 − (1 + i)^−n) = $4,720.91 · interest $916,273
6
Add the fee back to get the whole cost of the money
Interest is not the only cost. The guarantee fee is a real charge whether you wired it at closing or borrowed it, so the honest total cost of the loan is interest plus F.
$916,273 interest + $11,250.00 fee = $927,523

Guarantee fee

The fee is charged on the guaranteed portion, not the loan

Almost every wrong answer about SBA costs comes from multiplying the whole loan by the headline fee percentage. The fee is charged on the slice the SBA actually guarantees, and that slice is a larger share of a small loan than of a big one — so the fee does not scale in a straight line with the money you borrow.

fee = guaranteed × tier rate

Two multiplications, in the right order

Take the guarantee percentage first, then the fee percentage. Reversing the order, or skipping the first multiplication entirely, overstates the charge by roughly a third on a mid-sized loan.

$500,000 × 75% = $375,000, then × 3.00% = $11,250.00

split at one million guaranteed

The largest tier is charged in two bands

Above the top threshold the guaranteed portion is split, with a higher rate on the part over a million dollars. The result is a blended rate that creeps upward as the loan grows rather than jumping at a single cliff edge.

$1.5M loan: $1,000,000 × 3.50% + $125,000 × 3.75% = $39,687.50

Gross loan	SBA guarantees	Fee on the guaranteed portion	Example loan	Guaranteed	Fee	Share of the loan
$150,000 or less	85%	2.00%	$150,000	$127,500	$2,550.00	1.70%
$150,001 – $700,000	75%	3.00%	$500,000	$375,000	$11,250.00	2.25%
$700,001 – $5,000,000	75%	3.50% to $1M, then 3.75%	$1,500,000	$1,125,000	$39,687.50	2.65%
— same tier —	75%	3.50% to $1M, then 3.75%	$5,000,000	$3,750,000	$138,125.00	2.76%

Guaranteed exposure on any one loan is capped at $3,750,000, which is why the $5,000,000 row guarantees $3,750,000 rather than a straight 75%. Every tier here is set by SBA policy notice and is revised from time to time — the calculator above takes an override so a live term sheet always wins.

Paying the fee at closing versus rolling it into the loan

Both are allowed, and the difference is larger than it looks because a financed fee is carried for the whole term.

Settlement	Cash at closing	Amount financed	Usable proceeds	Monthly	Total interest	Whole cost
Fee paid in cash	$11,250.00	$500,000	$488,750	$4,720.91	$916,273	$927,523
Fee financed	$0.00	$511,250	$500,000	$4,827.13	$936,889	$948,139

$500,000 at 10.50% over 25 years. Financing the $11,250.00 fee adds $106.22 to every payment and $20,616 of extra interest — so the deferred fee ends up costing $31,866 in total.

Worked examples

Four 7(a) loans, priced end to end

One tab per use of proceeds, each worked from the guaranteed portion down to the payment, with the alternative term shown alongside. Switch tabs to watch the fee tier change with the loan size and the term change with what the money buys.

Given P = $1,500,000, rate = prime 7.50% + 3.00% = 10.50%, t = 25 years

Guaranteed portion: $1,500,000 × 75% = $1,125,000

Guarantee fee: $1,000,000 × 3.50% + $125,000 × 3.75% = $39,687.50

Amount financed (fee paid in cash): $1,500,000

Monthly rate and count: i = 10.50% ÷ 12 = 0.00875 · n = 25 × 12 = 300

Apply M = P·i ÷ (1 − (1 + i)⁻ⁿ): $1,500,000 × 0.00875 ÷ (1 − (1 + 0.00875)⁻³⁰⁰)

M = $14,162.73

total interest $2,748,818 · repaid $4,248,818 · fee $39,687.50

Term	Payment	Total interest
25 years (this tab)	$14,162.73	$2,748,818
10 years	$20,240.25	$928,830

The guaranteed portion here clears a million dollars, so the fee splits across two bands. And the twenty-five-year term is the reason a property purchase is the one 7(a) loan whose payment feels affordable. Stretching this loan from 10 years to 25 moves the interest bill by $1,819,988.

The term

Ten years or twenty-five — the decision

The term is set by what the money buys, not by what you would prefer, and it moves the payment more than the rate does. A property earns the twenty-five-year schedule because a building outlives everything else a business owns; payroll and machinery do not.

Loan amount

Rate

10-year term

$6,746.75

Working capital, equipment, acquisitions

Payments: 120
Total interest: $309,610
Total paid: $809,610

25-year term

$4,720.91

Owner-occupied commercial real estate

Payments: 300
Total interest: $916,273
Total paid: $1,416,273

10-year term38.2% of everything repaid is interest

25-year term64.7% of everything repaid is interest

On $500,000 at 10.50%, the twenty-five-year schedule cuts the monthly payment by 30% — from $6,746.75 to $4,720.91 — and multiplies the lifetime interest by 3.0×, from $309,610 to $916,273. That is the honest trade: a payment your cash flow can carry, bought with $606,663 of extra interest. It is the right trade when the alternative is a payment you cannot make, and the wrong one when you could have carried the shorter schedule all along.

Use of proceeds	Maximum term	What the money buys	Why the term is capped there
Working capital	10 years	Payroll, inventory, marketing, a cash-flow cushion, day-to-day operating expense.	Working capital is consumed inside a business cycle, so the loan is written to be repaid over roughly a decade rather than stretched across a generation.
Equipment	10 years	Machinery, vehicles, kitchen fit-out, computers, production lines, furniture.	The term is tied to the useful life of the asset. Ten years is the usual ceiling; a shorter-lived machine gets a shorter loan.
Commercial real estate	25 years	Buying, building or renovating an owner-occupied commercial property.	A building outlives every other thing a business buys, so the programme allows the longest term here — and it is the single biggest lever on the monthly payment.
Business acquisition	10 years	Buying an existing business, buying out a partner, or funding goodwill.	Goodwill has no useful life to hang a term on, so acquisition loans run on the ten-year schedule unless real estate comes with the deal.

On $500,000 at 10.50%, the ten-year schedule costs $6,746.75 a month and $309,610 of interest; the twenty-five-year schedule costs $4,720.91 and $916,273. That is $606,663 of extra interest bought with a 30% smaller payment.

The rate

Prime plus a spread, and what happens when prime moves

Most 7(a) loans are variable. The note is quoted as a base rate — usually the prime rate — plus a spread your lender negotiates, and the SBA caps how wide that spread may be. The cap is generous on small loans, because underwriting a small loan costs the lender almost as much as underwriting a large one.

rate = base + spread

A ceiling, not a quote

The cap is the most a lender may charge, not what a good file pays. Ask two or three lenders for the spread rather than the rate — the base rate is the same for all of them, so the spread is the only part that is really being negotiated.

Prime 7.50% plus a 3.00% spread gives the 10.50% note used throughout this page

it reprices when prime moves

Variable means the payment changes

A variable note is repriced on a schedule set in the loan agreement, usually quarterly. Model the payment a few points higher than today before you sign, because the business has to carry the payment at that rate too.

Each point of prime adds about $361.44 to the payment on $500,000 over 25 years

Loan size	Maximum spread over the base rate
$50,000 or less	+6.50%
$50,001 – $250,000	+6.00%
$250,001 – $350,000	+4.50%
Above $350,000	+3.00%

If prime rises	Note rate	Payment	Change
today	10.50%	$4,720.91	—
+1 points	11.50%	$5,082.34	+$361.44
+2 points	12.50%	$5,451.77	+$730.86
+3 points	13.50%	$5,828.22	+$1,107.32

Rate shock on $500,000 over 25 years from a 10.50% starting rate. Three points of prime take the payment from $4,720.91 to $5,828.22 — a rise of 23.5%.

Schedule

Where each payment actually goes

The payment is level, but its split is not. Interest is charged on the balance outstanding, and on a twenty-five-year loan that balance barely moves for years — which is why the first payments are almost pure interest and why an early overpayment is worth so much more than a late one.

Loan amount

Rate

Term

300 payments · 25y

Payment	Payment	Principal	Interest	Balance
1	$4,720.91	$345.91	$4,375.00	$499,654.09
2	$4,720.91	$348.94	$4,371.97	$499,305.16
3	$4,720.91	$351.99	$4,368.92	$498,953.17
4	$4,720.91	$355.07	$4,365.84	$498,598.10
5	$4,720.91	$358.18	$4,362.73	$498,239.92
6	$4,720.91	$361.31	$4,359.60	$497,878.62
7	$4,720.91	$364.47	$4,356.44	$497,514.14
8	$4,720.91	$367.66	$4,353.25	$497,146.48
9	$4,720.91	$370.88	$4,350.03	$496,775.61
10	$4,720.91	$374.12	$4,346.79	$496,401.49
11	$4,720.91	$377.40	$4,343.51	$496,024.09
12	$4,720.91	$380.70	$4,340.21	$495,643.39

Payment	Payment	Principal	Interest	Balance
289	$4,720.91	$4,252.29	$468.62	$49,303.96
290	$4,720.91	$4,289.50	$431.41	$45,014.46
291	$4,720.91	$4,327.03	$393.88	$40,687.43
292	$4,720.91	$4,364.89	$356.01	$36,322.53
293	$4,720.91	$4,403.09	$317.82	$31,919.45
294	$4,720.91	$4,441.61	$279.30	$27,477.83
295	$4,720.91	$4,480.48	$240.43	$22,997.36
296	$4,720.91	$4,519.68	$201.23	$18,477.67
297	$4,720.91	$4,559.23	$161.68	$13,918.45
298	$4,720.91	$4,599.12	$121.79	$9,319.32
299	$4,720.91	$4,639.36	$81.54	$4,679.96
300	$4,720.91	$4,679.96	$40.95	$0.00

Year	Payment	Principal	Interest	Balance
1	$56,650.90	$4,356.61	$52,294.30	$495,643.39
2	$56,650.90	$4,836.72	$51,814.18	$490,806.67
3	$56,650.90	$5,369.74	$51,281.16	$485,436.93
4	$56,650.90	$5,961.51	$50,689.39	$479,475.42
5	$56,650.90	$6,618.49	$50,032.42	$472,856.93
6	$56,650.90	$7,347.87	$49,303.04	$465,509.07
7	$56,650.90	$8,157.63	$48,493.28	$457,351.44
8	$56,650.90	$9,056.63	$47,594.28	$448,294.81
9	$56,650.90	$10,054.70	$46,596.21	$438,240.12
10	$56,650.90	$11,162.76	$45,488.14	$427,077.36
11	$56,650.90	$12,392.93	$44,257.97	$414,684.42
12	$56,650.90	$13,758.68	$42,892.22	$400,925.75
13	$56,650.90	$15,274.93	$41,375.97	$385,650.81
14	$56,650.90	$16,958.28	$39,692.62	$368,692.53
15	$56,650.90	$18,827.14	$37,823.76	$349,865.39
16	$56,650.90	$20,901.96	$35,748.94	$328,963.43
17	$56,650.90	$23,205.43	$33,445.48	$305,758.00
18	$56,650.90	$25,762.75	$30,888.16	$279,995.26
19	$56,650.90	$28,601.89	$28,049.01	$251,393.37
20	$56,650.90	$31,753.92	$24,896.99	$219,639.45
21	$56,650.90	$35,253.31	$21,397.60	$184,386.15
22	$56,650.90	$39,138.34	$17,512.56	$145,247.80
23	$56,650.90	$43,451.52	$13,199.38	$101,796.28
24	$56,650.90	$48,240.03	$8,410.87	$53,556.25
25	$56,650.90	$53,556.25	$3,094.65	$0.00

276 payments sit between the two windows.

On $500,000 at 10.50% over 25 years the payment is $4,720.91 every month, but payment 1 sends $4,375.00 to interest and only $345.91 to principal — by the final payment that has flipped to $40.95 and $4,679.96. Across the whole of year one, 92.3% of everything you pay is interest, and the balance falls by only $4,357.

Quick chart

SBA loan payments, by rate and term

Pick a loan size and read the monthly payment — or the total interest, or everything you repay — at every rate from 7.50% to 14.50% across six terms. Because a 7(a) rate is prime plus a spread, the useful range here is wider than a fixed-rate table would need.

Amount financed

Show

Monthly payment on $500,000, by rate and term.

Rate	5 years	7 years	10 years	15 years	20 years	25 years
7.50%	$10,019	$7,669	$5,935	$4,635	$4,028	$3,695
8.50%	$10,258	$7,918	$6,199	$4,924	$4,339	$4,026
9.50%	$10,501	$8,172	$6,470	$5,221	$4,661	$4,368
10.50%	$10,747	$8,430	$6,747	$5,527	$4,992	$4,721
11.50%	$10,996	$8,693	$7,030	$5,841	$5,332	$5,082
12.50%	$11,249	$8,961	$7,319	$6,163	$5,681	$5,452
13.50%	$11,505	$9,232	$7,614	$6,492	$6,037	$5,828
14.50%	$11,764	$9,509	$7,914	$6,828	$6,400	$6,211

Figures are on the amount financed and exclude the guarantee fee. Add the fee separately, or use the calculator at the top of the page to fold it into the loan. Terms beyond ten years are available only for owner-occupied commercial real estate.

Use of proceeds

What a 7(a) loan can and cannot buy

The programme is unusually broad — it is the reason the 7(a) exists rather than a stack of narrow products — but the exclusions are firm, and a lender will ask for a use-of-proceeds breakdown before it asks for anything else.

Eligible uses

Working capital — payroll, inventory, marketing, seasonal cash-flow gaps
Equipment, machinery, vehicles and fit-out
Buying, building or renovating owner-occupied commercial property
Buying an existing business, or buying out a partner
Refinancing business debt on demonstrably better terms
Start-up costs for a new business, with a stronger equity injection

Ineligible uses

Investment or rental property you do not mostly occupy yourself
Speculation of any kind, including lending and factoring businesses
Paying an owner or shareholder for a stake, outside a structured buy-out
Repaying delinquent federal debt, or taxes already owed
Businesses more than a third dependent on gambling revenue
Non-profits, passive holding companies, and pyramid-style sales structures

A mixed-use loan is normal — a property purchase alongside working capital, say — and the lender then blends the term across the two uses rather than granting the full 25 years on the whole facility.

Eligibility

What a lender has to be able to tick

Seven tests sit between an application and an approval. None of them is about the payment you can afford — that is the lender's own credit analysis — and every one of them is checked before the file goes anywhere near underwriting.

For-profit and operating: The business must be a for-profit concern that actually trades. Passive holding companies and non-profits are out, and a landlord who does not occupy most of the building is out with them.
Based and operating in the United States: The business has to do business in the US or its territories, and the owners must be US citizens or lawful permanent residents to avoid extra scrutiny on the ownership test.
Inside the SBA size standard: Small is defined per industry, by employee headcount or by average annual receipts. Most independent businesses clear this easily; check the standard for your own industry code before assuming.
Credit available elsewhere was tested: The programme exists to fill a gap. A lender must be able to show that reasonable conventional terms were not available to you without the guarantee.
Owner equity injection: Expect to put money in yourself, and expect more of it on a start-up or an acquisition than on an expansion. The injection is what convinces a lender the risk is shared.
Personal guarantee from 20% owners: Anyone holding a fifth or more of the business signs personally. The guarantee is unlimited, which is the single most consequential line in the loan documents.
Collateral to the extent available: A 7(a) loan is not declined for want of collateral alone, but a lender will take what there is — business assets first, and a lien on personal real estate on larger loans.

Reference

7(a), 504, Microloan and Express

The 7(a) is the default, but it is not always the right door. Pick on what the money is for, how fast you need it, and whether a fixed rate matters more than flexibility.

Programme	What it funds	Size	Term	Rate	Speed
7(a)	Working capital, equipment, acquisitions, owner-occupied real estate, debt refinance — the general-purpose programme.	Up to $5 million	10 years typical; 25 for real estate	Usually variable: a base rate plus a capped lender spread	Weeks to a few months
504	Fixed assets only — owner-occupied buildings and heavy, long-lived equipment. Not working capital.	Debenture up to $5 million, more for some manufacturing and energy projects	10, 20 or 25 years on the debenture	Fixed, tied to the bond market at the time the debenture sells	Slowest — three parties to a deal
Microloan	Small working-capital and equipment needs, often for very new or very small businesses.	Up to $50,000	Up to about 7 years	Set by the non-profit intermediary; typically above 7(a)	Fast — weeks
SBA Express	Working capital and lines of credit where speed matters more than size.	Up to $500,000	Up to 10 years; lines of credit shorter	Variable, with a wider allowable spread than standard 7(a)	Fastest — the SBA responds to the lender within days

Programme ceilings and terms are set by the SBA and revised periodically. For a conventional comparison, price the same money as an ordinary amortizing loan or a personal loan and compare the whole cost, fee included.

Prepayment

Paying it off early

A 7(a) loan is a simple-interest loan, so every extra dollar of principal stops accruing interest immediately. The one catch is a declining charge that attaches to long terms only, and only to large lump-sum prepayments in the first three years.

terms of 15 years or more

When the charge applies

The charge bites only on long terms, only in the first three years, and only when a borrower repays more than a quarter of the outstanding balance inside a single year. A ten-year working-capital or equipment loan carries none of it.

Clearing the $495,643 outstanding at the end of year one on the reference loan would add $24,782.17

regular overpayments are free

Extra principal never trips it

Monthly overpayments sit far below the free share of the balance, so they escape the charge entirely — and because they land early, when the balance is largest, they are worth far more than the same money paid later.

$500 a month extra clears the reference loan 91 payments early and removes $325,568 of interest

Payoff in	Charge	Balance then	Charge in dollars
Year 1	5%	$495,643	$24,782.17
Year 2	3%	$490,807	$14,724.20
Year 3	1%	$485,437	$4,854.37
Year 4 onwards	0%	—	nothing

On $500,000 at 10.50% over 25 years. Terms under 15 years carry no charge, and prepayments up to 25% of the outstanding balance in a year are free even on a long term.

Worth knowing

Six things that decide the deal

None of these appear in the headline rate, and each of them can be worth more than a point of interest.

the spread, not the rate

Negotiate the only part that is negotiable

The base rate is identical at every lender, so the spread is the whole negotiation. Ask each lender for its spread rather than its rate and the offers become directly comparable in a way headline rates never are.

A half-point of spread is worth $177.40 a month on the reference loan

preferred lender status

Who underwrites decides how long it takes

Lenders with delegated authority approve in house instead of sending the file to the agency, which typically removes weeks. A lender that writes your industry every month also asks better questions and asks for fewer documents twice.

unlimited personal guarantee

The most consequential line in the documents

The guarantee is not capped at your ownership share, and it survives the business. Read it before you read the rate sheet, and take advice if a spouse is being asked to sign alongside you.

Everyone holding a fifth or more of the business signs personally

closing costs beyond the fee

The fee is not the only upfront cost

Appraisals, environmental reports on a property, title work, legal review and packaging fees all land at closing. On a real-estate deal they can add up to more than the guarantee fee itself, so ask for an itemised estimate early.

model it three points higher

Stress-test the payment before you sign

A variable note reprices whether or not the business is having a good year. Check that the payment still clears your debt-service cover at a materially higher rate, not just at today’s.

At three points higher the reference payment goes from $4,720.91 to $5,828.22

refinance is an eligible use

You can re-shop an existing loan

Business debt on demonstrably worse terms can be refinanced into a 7(a), which is often how an expensive short-term facility becomes a manageable ten-year one. The test is improvement in terms, so bring the existing note to the conversation.

Glossary

The words on a 7(a) term sheet

Six terms that mean something specific in this programme, and where a loose reading will move your numbers.

Gross loan: The face amount of the note — what you sign for. The guarantee fee is calculated from this figure, and the programme ceiling applies to it.
Guaranteed portion: The slice of the gross loan the SBA stands behind. It is a larger share of a small loan than of a large one, it is capped in dollars on any single loan, and it is the base the guarantee fee is charged on.
Guarantee fee: The upfront charge for that guarantee, payable at closing or financed into the loan. It is a cost of the money even though it never appears on a monthly statement.
Lender spread: The percentage points a lender adds to the base rate. Capped by loan size under SBA rules, and the only part of the rate that is genuinely negotiated.
Use of proceeds: The breakdown of what the money will be spent on. It determines the maximum term, and a lender will document it before underwriting rather than after.
Equity injection: The borrower's own money in the deal. Larger on a start-up or an acquisition than on an expansion, and the figure a lender uses to judge whether the risk is genuinely shared.

FAQ

Common questions

An SBA 7(a) loan is a level-payment instalment loan, so the payment is M = P·i ÷ (1 − (1 + i)^−n), where P is the amount financed, i is the annual rate divided by twelve, and n is the number of monthly payments. On $500,000 at 10.50% over 25 years, i is 0.00875 and n is 300, which gives $4,720.91 a month and $916,272.56 of interest over the life of the loan. The two 7(a)-specific complications are that the rate is usually variable — quoted as a base rate plus your lender's spread — and that the SBA charges an upfront guarantee fee that you can either pay at closing or roll into P.

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