Typical Closing Costs SBA Loan

Due to the current credit crisis many borrower are considering SBA business loans for the first time and want to know what to expect in terms of the typical closing costs. Note that the SBA guarantee fees are currently waived, via President Obama’s Stimulus Package. However we will list the guarantee fee so that you know what to expect, should the program run out of money (again).

Here's an example on a SBA 7a transaction, with a loan amount of $1,000,000:

$22,500 - 3% (the percentage ranges based on the size of the loan amount)of the guaranteed portion of the loan amount which is normally set at 75% of it (75% x $1,000,000 = $750,000 x 3% = $22,500). This fee is financed into the loan amount.
$3,500 Appraisal Report
$1,800 Phase One Environmental Report
$1,500 Title (Title cost vary considerable depending on the state)
$2,500 SBA Packaging Fee (This is an optional expense that the bank charges the borrower)
$3,000 Attoney Review Fee (This is another optional fee, that funding sources charge to borrowers)
Total Costs of Approximately $34,800 with the Guarantee Fee or Appr $12,300 without it.

Borrowers that compare these costs to the closing cost on a normal conventional bank loan will notice the additional expenses of the packaging fees and attorney review fees. These fees are not required, but the vast majority of banks do demand that the borrowers pay them. Sometimes these service are hired out to third parties, other times they are handled in house.

Other more typical fees such as title, appraisal and environmental will normally be on the high side with SBA loans as well. Most banks that do SBA financing, will use the third party vendors with the best credentials and therefore require the highest price. For example, a typical appraisal for an SBA loan will cost $3,500 – even if the loan request is small at say $500,000.

SBA Loan Closing Costs - Why Pay Them?

Despite the high fees that are associated with SBA loans, they are still very popular – why? A couple of reasons. One, they provide the highest level of leverage in the industry. As property value decline, this increase in financing (up to 85% on refinances) is often a business life saver. Two, they are viable and are actively closing. This is a huge point and should not be over looked. It’s estimated that 80% of conventional lenders have stopped funding loans. The 20% that are lending are only considering the very best loan requests.

Three, most of these costs are rolled into the loan, ie the costs can be financed. Not the appraisal fee, packaging fee and Phase 1 are normally paid for upfront, but most banks will allow these costs to be reimbursed at closing, especially on refinances.

Four, besides the fees, these loan programs can have really good terms. Like low rates (currently in the 5%’s), no balloon clauses, long amortization periods (normally 25 years on real estate) and the most flexible underwriting standards in the business. Because of these reasons, many business owners tolerate the fees and go forward with the loan.

Let us know if you would like to discuss your potential SBA loan and how we might be able to help you. Note, that we always strive to reduce our clients rate and closing costs by creating a competitive environment between funding sources. We are experts in this business and represent our customers interests. Fill out our Pre Approval Form below to get started.