The SBA loan is the most popular type of loan available. It is guaranteed up to 85% by the Small Business Administration (‘SBA’) and offers by far the most competitive rates. However, there are some drawbacks to this loan. It is a long application process that can take months to complete, and the list of required documentation is onerous.
The SBA loan is guaranteed by the SBA but it is banks and lending institutions that process the loan, subject to terms and conditions set out by the SBA. Ultimately, it is at the banks’ discretion to reject or accept an applicant and to offer whatever interest rate they believe to be appropriate.
Below, we have broken it down for you so that you are aware of the loan rates that you should be getting. Keep in mind that the interest rate you get will be a function of your unique business model, the collateral you can supply, the loan type and loan amount, as well as numerous other details.
SBA Loan Types Explained
There are 5 major SBA loans. These include:
- SBA (7)(a) – This is the most common SBA loan that a small business enterprise will go after. This can only be used for business purposes, not personal use.
- SBA Express – Technically, this is a subcategory of the SBA (7)(a). It is generated faster with less documentation required but comes with a higher loan interest rate to offset this.
- SBA CAPLine – This loan is designed primarily for building contractors working on large projects. It can also be used for inventory and equipment financing for construction companies. There are 4 subcategories of the CAPLine program.
- SBA 504 – The SBA 504 is for the purchase of fixed assets (primarily real estate) at below-market rates.
- SBA Microloans – The amounts are smaller (below $50,000) and the term lengths are typically shorter. However, interest rates are also higher. Like the SBA Express, this is a subcategory of the SBA(7)(a) program.
The terms and conditions of each of these loan types are explored in more detail below. If you want more information on the differences between the different SBA loan programs, check out our guide explaining all of the 18 SBA programs on offer.
Other kinds of SBA loans that are available but not covered here include disaster loans, low-interest loans for underprivileged communities (veterans, female entrepreneurs, etc), and export loans. Most small businesses will only be concerned with the SBA (7)(a), and, in some instances, the Express and Microloans program on offer. Disaster relief loans are also available for qualified applicants.
How SBA Interest Rates Are Calculated
Like most loans, the SBA loan programs consist of a base rate (prime rate or LIBOR) and a max peg on what financial institutions can charge on top of this. The base rate can vary depending on market conditions.
As of right now, the base rate is 4.75%. What the financial institutions can add on to this will depend on factors such as the loan size and the repayment term. It is also useful to keep in mind that SBA loans can be fixed or variable, but are most often variable.
SBA Loan Type Interest Rates Summary
Below is a summary of the total interest rates that can be charged to an applicant under the guidelines of each respective program. These are current as of February 2020. Whether you will get the lower or higher end of the range depends on your eligibility, loan amount, and term length.
|Loan Type||Average Interest Rate Jan 2020|
|SBA (7)(a)||7% – 9.5%|
|SBA Express||9.5% – 11.5%|
|SBA CDC/504||3.4% – 3.7%|
|SBA CAPLine||6.75% – 9.25%|
|SBA Microloan||6.5% – 13%|
SBA Loan Average Across Platforms
The following is the average SBA loan interest rate across different lending platforms. Bear in mind that this figure will not be very useful, because it is not specific enough. It takes all SBA loans into account, and the number of large real estate loans with a lower rate reduces the overall averages. Small businesses will not be looking for these loans, and the rates will be higher. Additionally, the figures do not take additional charges into account.
|Entity Type||SBA Loan Average|
|Small & Regional Banks||5.96%|
SBA(7)(a) Interest Rates
The SBA has outlined the maximum interest rate that financial institutions can charge an applicant under the (7)(a) program. The total maximum interest rate will depend on the amount of being a borrower and the term length. As you can see from the table above, the range you can pay for an SBA (7)(a) loan is between 7.25% and 9.75%, provided you qualify under the criteria.
|Loan Amount||Less Than 7 Year Term||More Than 7 Year Term|
|Less than $25,000||9% (4.75% base rate +4.75%)||9.5% (4.75% base rate +4.75%)|
|$25,000 – $50,000||8% (4.75% base rate + 3.25%)||8.50% (4.75% base rate + 3.75%)|
|More than $50,000||7% (4.75% base rate + 2.25%)||7.5% (4.75% base rate + 2.75%)|
SBA Express Average Interest Rates
For the SBA Express, the average interest rate is similar to the SBA (7)(a) in its calculation. It consists of the base rate and the SBA maximum allowed peg. The Express loan is faster to process (response within 36 hours), though the maximum rates are higher. With the SBA Express, the total amount available to borrow is $350,000 and it is guaranteed up to 50% by the SBA.
|Loan Amounts||Interest Rate (Max)|
|Less than $50,000||9.25% (4.75% base rate + 4.5% spread)|
|More than $50,000||11.25% (4.75% base rate + 6.5% spread)|
SBA Microloan Average Interest Rates
With microloans, borrowers can apply for up to $50,000 in funding. The requirements are a lot more lenient given that the total amount is far less than the typical SBA (7)(a). Other fees associated with the microloan include the application fee, loan processing fee, and the closing costs, which can add between 2 – 4% onto the loan itself. Microloans can never have longer repayment terms than 6 years, and most do not require collateral.
|Loan Amount||Maximum interest rate|
SBA 504 Average Interest Rates
The SBA 504 average interest rates are a little more difficult to compute. This is due to the complex nature of these loans, which are involved in the purchase of real estate units. Such deals often come with many conditions and additional costs aside from the interest rate of the loan itself.
As such, the rate you receive for your SBA 504 application might vary from the average given below. The average is made from the Treasury rate (which changes monthly but is averaged based on the 2019 rate). The total average fees are made up of SBA borrower fees (0.914%), CDC fees (0.625%), and CSA fees (0.1%) for a total of 1.64%.
|SBA 504 Term Length||Average Total Rate|
|10 Year Loan||3.37% (1.35% 10 Year Treasury Rate + 1.64% total average fees + 0.38% average spread for 2019 bonds)|
|20 Year Loan||3.69% (1.35% 20 Year Treasury Rate + 1.64% total average fees + 0.51% average spread for 2019 bonds)|
SBA CAPLine Average Interest Rates
The SBA CapLine is a line of credit as opposed to a term loan. It can be used as often as its repaid, much like the typical line of credit. Unlike most typical lines of credit, however, the SBA CAPLine extends to $5 million. The CAPLines are further subdivided into Seasonal, Contract, Builders, and Working Capital.
Many rules and regulations are surrounding the acceptance of a CAPLine application. You must own at least 20% of the business and will have to provide significant collateral, as well as have solid documentation. There are many other fees associated with the CAPLine aside from the interest rate. These fees include a one-time guarantee fee, service fees, extraordinary servicing fees, out-of-pocket expenses (appraisal fees, environmental reports), late payment fees, subsidy recoupment fees, assumption fees and more.
|Loan Type||Max Amount||Length||Interest|
|Seasonal||$5 Million||10 Years||6.75% – 9.25% (Prime rate of 4.75%) + 2.25% – 4.25%)|
|Contract||$5 Million||10 Years||6.75% – 9.25% (Prime rate of 4.75%) + 2.25% – 4.25%)|
|Builders||$5 Million||5 Years||6.75% – 9.25% (Prime rate of 4.75%) + 2.25% – 4.25%)|
|Working Capital||$5 Million||10 Years||6.75% – 9.25% (Prime rate of 4.75%) + 2.25% – 4.25%)|
Qualifying for an SBA Loan
Below you embark on a long and cumbersome loan application process, you need to first make sure that you meet the eligibility criteria. Otherwise, you are wasting a lot of precious time, as it requires an incredible level of documentation.
While each loan will have specific requirements, as a general rule thumb you will need to have a credit score of 680 and at least $100,000 in annual revenue to apply for an SBA loan. You will also want to be in business for at least 2 years.
For microloans, the requirements will be less strict, but for the standard SBA (7)(a) these are the typical criteria. Large financial institutions do not want to take risks with businesses that have low credit ratings, a short history, and low revenue. It is just not worth it for them, even though your odds will increase if you can post some collateral on the loan amount.
Average Small Business Interest Rates and Your Credit Score
When it comes to the loan interest rate you will receive, then nothing is as important as your credit score. Your credit score is an amalgamation of all of your most significant financial metrics rolled into one figure so lending institutions can gauge how trustworthy you are and the likelihood of you defaulting on your debts. In other words, the credit score is designed so that banks and other financial institutions can gauge your creditworthiness.
All other things remaining equal, the higher your credit rating, the lower your interest rate. The most common credit scoring system is known as FICO. FICO is used by more than 90% of US lenders. It is broken down as follows:
- Payment history (35%) – How good you are at making payments. Late payment stays on record for 7 years.
- Credit utilization (30%) – How much of your total available credit is being used.
- Credit history (15%) – How long your credit accounts have been open.
- Credit mix (10%) – What kinds of credit accounts you have open.
- New or old credit (10%) – New accounts could have a negative impact on your credit score.
Within the FICO scoring system, a score below 580 is classified as ‘Poor’, 580 – 669 is classified as ‘Fair’, 670 – 739 as ‘Good’, 740 – 799 as ‘Very Good’, and 800+ as ‘Exceptional’. It’s worth keeping in mind that FICO is upgrading its credit scoring system this year (2020). This upgrade will include more comprehensive analysis, but the fundamentals of increasing your credit score will largely remain the same.
SBA (7)(a) Interest Rates Against Online Lenders
To get the best rates, your credit score should be 670 and above as per the FICO credit scoring system. However, you can use alternative lenders with a lower credit score to get a loan to suit your needs. Examples of high-quality online lenders include Fundbox, Kabbage, Ondeck, Lendingclub, and Loanbuilder.
With these lenders, the terms and conditions are clear and you know how much you will be paying back before taking on the loan. While the rates might be a little higher, it is often far safer to be assured of funding within 48 hours of application. It can be very demoralizing submitting an application for an SBA loan to have it turned down.
Loan Fees To Be Made Aware Of Outside Of Interest Rates
While it is always useful to understand the interest rate, you also need to read the fine print for any additional charges. This goes for all loans from all kinds of lending institutions. You also need to check whether your rate is fixed or variable.
Most of the SBA (7)(a) loans and its subcategories (Express, Microloan) use a variable interest rate, meaning that the base rate will go up or down depending on market conditions. However, in some instances your interest rate can be fixed. Other charges for an SBA loan can include:
- One time guarantee fee – This fee is 3% on loans between $150,000 – $700,000, 3.5% above $700,000, and an additional 0.25% on the portion above $1,000,000. This fee is not typical for most loan applications.
- Prepayment penalty – If you pay more than 25% of your loan in the first 3 years, you will incur a prepayment penalty. This only applies to loans with a term length above 15 years.
- Packaging fee – The maximum amount for this fee is $4,000, and this varies greatly by the lender. This fee cannot exceed the amount charged for non-SBA guaranteed loans of a similar size.
- Extraordinary servicing fee – If your loan requires an ‘extraordinary’ amount of extra work to service, up to 2 % of the loan can be charged. A large scale construction project might require such a fee.
- Closing costs – If your loan requires additional closing costs (title fees, environmental reports, appraisal fees, etc) these will be added on to the total amount you will have to pay on the loan.
There is much variance when it comes to average interest rates for an SBA loan. There are so many moving parts that you need to get more specific to find out what to expect. A lot will also depend on what kind of loan you are looking for, what credit rating you possess, and whether or not you are willing to post collateral.
Generally, a rate of 6 – 10 % can be expected for SBA (7)(a) loans, the most common kinds for small businesses. If you have an excellent credit rating and post collateral, you can get a rate between 4 – 6%. For microloans and express loans, these rates will be higher, but the turnaround times will be quicker.