Best SBA Loan Interest Rates: 504, 7a Current & Average Rates

Best SBA Loan Rates‍

Interest rates for SBA 7(a) loans are comprised of the daily prime rate, which changes based on actions taken at the Federal Reserve, plus a lender spread, which is capped by the SBA based on the size and maturity of the loan. This spread is negotiated between the borrower and the lender. The result is either a fixed or variable interest rate.

A lender might also calculate interest rates using the one-month London Interbank Offered Rate plus 3% or with the SBA’s optional peg rate instead of the daily prime rate.

What is the current interest rate on an SBA loan?

• 7(A) SBA LOANS REPAID IN LESS THAN 7 YEARS

For SBA 7(A) loans scheduled to be repaid over 7 years or less, the maximum interest rate allowed will vary based on the size of the loan. For loans of $25,000 or less, the maximum interest rate is Prime + 4.25%. For loans between $25,001 - $50,000, the maximum interest rate must be Prime + 3.25%. Last, the maximum interest rate for loans over $50,000 must be Prime + 2.25%.

The current Prime rate in December 2022 is 7.5%. Therefore, if a small business takes out a 7(A) loan with a loan duration of fewer than 7 years, they can expect to pay no more than 11.75% for a loan that is $25,000 or less, no more than 10.75% for a loan between $25,001 and $50,000, and no more than 9.75% for a loan over $50,000.

• 7(A) SBA LOANS REPAID IN MORE THAN 7 YEARS

For SBA 7(A) loans with payback periods longer than 7 years, the interest rates are slightly less favorable. For loans of $25,000 or less, the maximum interest rate is Prime + 4.75%. For loans between $25,001 and $50,000, the maximum interest rate is Prime + 3.75%. Last, the maximum interest rate for loans over $50,000 is Prime + 2.75%.

The current Prime rate in December 2022 is 7.5%. So, if a small business takes out a 7(A) loan with a loan duration longer than 7 years, they can expect to pay no more than 12.25% for a loan that is $25,000 or less, no more than 11.25% for a loan that is between $25,001 and $50,000, and no more than 10.25% for a loan that is more than $50,000.

SBA 7(A) loan terms

A few terms that you should know about when it comes to SBA 7(A) loans include:

• 7(A) loans do not have a minimum loan amount requirement and max out at $5 million.
• The SBA guarantees 85% of your loan if it is less than $150,000 and 75% if it’s more than $150,000. Though, it limits guarantees to $3.75 million.

SBA loans are not easy to qualify for. Learn more by reading below.

SBA loan fees

If you’re pursuing an SBA loan, you need to be aware of two types of fees: 

• Guaranty Fees (cover SBA costs in the event of default)
• Annual Service Fees (compensate lenders for making and administering the loans)

Here’s how fees can apply:

• Loans less than $350,000: Should be no guaranty fee for your SBA 7(A) loan.
• Loans between $350,001 and $700,000: Upfront guaranty fee of 2.77% of the guaranteed portion of the loan + an annual service fee of 0.49% of the outstanding balance.
• Loans between $700,001 and $1 million: upfront guaranty fee of 3.27% of the guaranteed portion of the loan + an annual service fee of 0.49% of the guaranteed portion of the outstanding balance.
• Loans over $1 million: Upfront guaranty fee is 3.5% of the guaranteed portion up to $1 million + 3.75% of the guaranteed portion over $1 million. There’s also an annual service fee of 0.55% of the guaranteed portion of the outstanding balance.

CDC/504 loans

Another type of SBA loan used by small businesses is a CDC/504 loan. To be eligible for this loan, you must: a) operate as a for-profit company in the United States, b) have a tangible net worth of less than $15 million, c) have an average net income of less than $5 million after federal income taxes for the two years preceding the application. These loans are popular for small businesses looking to buy land, buildings, or major equipment with long-term, fixed-rate financing. These loans require collateral. The collateral is usually the financed asset (s) and personal guarantees from the principal borrowers.

CDC/504 SBA loan terms

Here are some basic CDC/504 loan terms: 

• Terms available in 10, 20, or 25-year terms
• Maximum loan amount available $5.5 million

How 504 loan rates are set

504 loan interest rates are based on the U.S. Treasury bond rate. When applying, you’ll be quoted an effective interest rate, which is the sum of three fees:

1. A guaranty fee paid to the SBA.
2. A servicing fee paid to the CDC.
3. Central servicing agent fee, paid to the agent - and the Treasury bond rate. 

Borrowers can expect to pay a one-time fee of 2.15% to the SBA and some additional fees. As a result, the total APR will be slightly higher than your effective rate. Last, it’s important to consider that the down payment required for a 504 loan is at least 10% of the project's cost. Then, a traditional lender, such as a bank, will contribute 50% of the loan, and a certified development company will contribute as much as 40%. The SBA will then guarantee 100% of the CDC portion of the loan. 

What is the difference between a fixed and variable SBA loan rate?

The main difference between a fixed and variable SBA loan rate is that a fixed interest rate will stay the same over time. Whereas a variable SBA loan interest rate changes over the course of the loan. The changes in the interest rate are based on the market, usually, a financial benchmark set by the bank. Variable SBA loan rates are risky because there is a potential that the interest rate will increase drastically. A fixed SBA loan rate may cost slightly more on paper, but you will have the peace of mind of knowing exactly how much the loan will cost you (assuming you make your payments on time).

Are SBA loans interest free for 12 Months?

SBA 7(A) loans and CDC/504 loans are not interest-free for 12 months.

However, suppose your business needs to repair or replace disaster-damaged or destroyed real estate, machinery, equipment, inventory, or other business assets. In that case, you may qualify for the SBA’s Economic Injury Disaster Loan (EIDL) to meet working capital needs. These loans can also help business owners who were negatively impacted by COVID-19. For these SBA loans, interest rates are zero percent for the first year and are as low as 3.04 percent for businesses, not to exceed 4 percent. For loans over $25,000, collateral is required, with real estate as the preferred collateral. The SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred.

Do SBA loans have high interest rates?

Compared to conventional business loans, SBA loans tend to have longer repayment terms and lower interest rates. Of course, the most competitive interest rate that your business can achieve varies greatly based on several factors. Still, SBA loans are generally geared toward new businesses that haven’t operated long enough to build strong credit histories.

Are SBA loans fixed rate?

SBA loans come in both fixed-rate and variable-rate options. The individual SBA-approved lenders determine rates, but they must comply with maximums set by the SBA.

What are the types of SBA loans?

There are 9 types of SBA loans available:

1. SBA 7(A) loans: This is the most popular type of SBA loan. It can be used for working capital, expansion, equipment, and property. The maximum loan amount possible is $5 million and the maximum loan duration is 25 years.

2. SBA Express Loans: These loans are smaller and quicker than traditional SBA 7(A) loans and are available for a loan amount up to $350,000. They are best for businesses needing fast funding and owners with strong credit histories.

3. SBA 504 Loans: These loans are available to purchase fixed assets like real estate or equipment. Loan amounts range from $125,000 to $20 million. 

4. SBA Microloans: These loans are small and short-term, typically used for working capital or inventory. They are best for businesses with a strong credit history needing smaller funding.

5. SBA Disaster Loans: These are available to businesses that have been negatively impacted by a declared disaster. Businesses can claim two types: Business Physical Disaster Loans and Economic Injury Disaster Loans (EIDL). Both loans are available for up to $2 million and have competitive interest rates and terms.

6. SBA Community Advantage Loans: To take advantage of this program, your business should be located in an underserved market, as defined here. These loans can be used for working capital, equipment, expansion, and property.

7. SBA Export Working Capital Loans: This program is designed to help small businesses finance their international sales. These loans can finance receivables, inventory, and other short-term working capital needs.

8. SBA Export Express Loans: These loans offer quick financing and are best for businesses that want to expand their operations by exporting goods or services. Loans are available for up to $500,000, with terms of up to 12 months.

9. SBA International Trade Loans: These loans are available to businesses engaged in international trade with a maximum loan amount of $5 million. 

What disqualifies you from getting an SBA loan?

Although SBA loans are a valuable resource, they can be tough to qualify for. Some things that may disqualify businesses from qualifying for an SBA loan include the following.

• Poor credit. Although the SBA does not have a minimum credit score requirement, most SBA-approved lenders want to see an excellent personal credit score (720 FICO +). To view your credit through the lens of a lender to identify necessary improvements, check out mySMBscore.
• You don’t have collateral. Since small or new businesses may increase the risk for borrowers, collateral is often required. Collateral for an SBA loan can include an asset or property (like real estate or equipment), that the lender will hold as security for the loan. By pledging collateral, you help the lender mitigate risk.
• You have excess cash or liquid assets. A requirement set forth by the SBA is that borrowers must use alternative financing resources, including cash or other liquid assets, before pursuing an SBA loan. If the SBA determines that personal or business resources are plentiful or excessive, the business will not qualify for an SBA loan. If this applies to you, you might consider an unsecured business loan instead.
• You must be current on all government loans. If you have defaulted on government-guaranteed student loan payments, a Federal Housing Administration loan, or the like, do not apply for an SBA loan. To qualify for an SBA loan, you must be current on all other government loans and past defaulted government loans can disqualify you.
• You have a criminal record. The SBA application will ask whether you’ve been charged with a crime or arrested within the previous 6 months. It will also ask whether the arrest was minor, such as a motor vehicle violation. Although an arrest doesn’t necessarily disqualify you, having a criminal record can delay the application process because the SBA wants to know that the small-business owner has “good character” and is credit and character eligible.

There are also specific types of businesses that are not eligible for SBA loans. These include

• Real estate investment firms that intend to hold real property for investment purposes.
• Firms involved in speculative activities develop profits from fluctuations in price rather than through the normal course of trade.
• Dealers of rare coins and stamps.
• Firms involved in lending activities like banks, finance companies, factors, insurance companies (not agents), and more.  Any firm that has stock in trade as money should not be eligible.
• Pyramid sales plans.
• Businesses that are involved with illegal activities based on the jurisdiction in which the business operates.
• Gambling activities, excluding businesses that obtain less than one-third of their annual gross income from either the sale of official state lottery tickets under a state license, or legal gambling activities licensed and supervised by a state authority.
• Charitable, religious, or other non-profit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, churches, and organizations promoting religious objectives are not eligible.

 How long can you finance an SBA loan?

SBA loan programs are generally intended to encourage longer-term small business financing. The maximum duration of an SBA loan is 25 years for real estate, 10 years for equipment, and 10 years for working capital or an inventory loan.

What are the average terms on a SBA loan?

There are several types of SBA loans with variable requirements and opportunities, as mentioned above. The most common SBA loan is the 7(A) loan. In 2018, the average SBA 7(A) loan amount was $417,316; in 2022, the average small business loan amount, according to the Federal Reserve, was $633,000. The duration of the loan will depend on how the loan will be used. Generally, the SBA requires the lender to set terms based on the use of proceeds, the useful life of assets acquired, and, most importantly, the borrower’s ability to repay. The SBA will always try to achieve the shortest term possible to minimize risk. That being said, loans for working capital can last up to 10 years, loans for equipment, fixtures, or furniture can last up to 10 years, real estate up to 25 years, leasehold improvements up to 10 years, and mixed-purpose loans will often have a blended maturity date.

How are SBA loan interest rates calculated?

Interest rates for the SBA 7(A) loans are calculated based on the daily prime rate (which changes based on actions taken by the Federal Reserve) plus a lender spread. As of December, interest rates for the SBA 7(A) loan vary from 9.75% to 12.25%, depending on the loan size and loan duration (7 years being the cutoff). LIBOR or the SBA PEG rate may also be used depending on the specific institution and geographic location.

What is the maximum SBA loan interest rate?

The maximum interest rate of an SBA loan will vary depending on the daily prime rate, which changes based on actions taken by the Federal Reserve. As of December 2022, the maximum interest rate on an SBA 7(A) loan is 12.25%.

Preparing for a business loan?  Increase your chance of qualifying for a small business loan at mySMBscore!

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