Small Business Administration (SBA) loans are among the most popular and reliable ways for small business owners to secure funding. As with any financial product, however, loan rates change. What are the rates for business owners looking to get financing? It depends on the specific SBA loan.
Current SBA Loan Interest Rates 2021
- SBA CARES Paycheck Protection Program (PPP) loan rate: 1%
- Economic Injury Disaster loan (EIDL) rate: 3.75% (2.75% for non-profits)
- Other Disaster loan rates: up to 4% to 8%
- SBA 7(a) fixed rates: up to 8.25% to 11.25%
- SBA 7(a) variable rates: up to 6% to 7.25%
- SBA Express loan rates: up to 7.75% or 9.75%
- SBA Microloan current rates: up to 7.75 to 8.5%
- SBA 504 current rates: 2.231% to 2.399%
Here are more details about interest rates and terms of various SBA loan programs.
SBA PPP loan rates
Paycheck Protection Program loans were made available to small business owners impacted by the pandemic. Most of these loans will be forgiven, but any balances that are not forgivable carry a fixed rate of 1% for any balances not forgiven. The repayment period is 2 years for loans approved by the SBA before June 5, 2020 or 5 years for loans approved after. (Lenders and borrowers may agree to a 5 year term for loans approved before June 5, 2020.)
SBA EIDL loan rates
Economic Injury Disaster Loans related to the COVID-19 disaster carry a fixed rate of 3.75% (2.75% for nonprofits) for 30 years.
SBA Disaster loan rates
The Disaster loan program has been around for many years, and there are SBA Disaster loans for businesses in a federally declared disaster area (for example, areas impacted by hurricanes, earthquakes, fires or other disasters). Businesses may apply for loans of up to $2 million for physical damages due to the disaster. Businesses suffering economic injury due to the disaster loan may apply for an Economic Injury Disaster loan of up to $2 million, and loan proceeds may be used for working capital to help the business pay bills it would have paid had the disaster not occurred.
The interest rate will be set when the disaster is declared and will cover all loans processed under that disaster declaration. In recent disasters (2019 and 2020) the interest rate has been up to 4% (2.75% for private nonprofits) for businesses without credit available elsewhere. The maximum rate for businesses with credit available elsewhere is currently 8%.
By law, the interest rate depends on whether the business has “Credit Available Elsewhere.” The SBA will determine whether the applicant does or does not have does not have sufficient funds or other resources, or the ability to borrow from non-government sources, to provide for its own disaster recovery. Those that do have other resources are deemed to have credit available elsewhere. (EIDL applicants determined to have Credit Available Elsewhere are ineligible for EIDL disaster assistance.)
The maximum term for an SBA Disaster loan is 30 years. Businesses with credit available elsewhere have a maximum repayment term of 7 years. The SBA will set the payment amount and length of repayment based upon the borrower’s ability to repay.
MREIDL loan rates
For loans under the Military Reservist Economic Injury Disaster Loan program, the published interest rate which will be assigned to MREIDL loans changes quarterly. However, once the appropriate interest rate is assigned to a MREIDL loan at the time of approval, it remains fixed. The interest rate to be applied to any MREIDL loan is SBA’s published EIDL interest rate at the time the MREIDL application is approved.
SBA 7(a) loans
SBA 7(a) loans are probably the best known of SBA loans, offering up to $5 million in funding for qualified businesses.
SBA 7(a) loans may have fixed or variable interest rates. For variable rates loans, there are generally three acceptable base rates:
- The Prime Rate;
- One-month LIBOR plus 3 percentage points
- SBA Optional Peg Rate
Each of these base rates is very close, differing by less than a portion of a percentage point. (In addition, LIBOR will be phased out, and lenders do have the option of using another base rate if they use it on similarly priced commercial loans.)
SBA 7(a) Variable Loan Rates
Variable rate loans based on the current prime rate of 3.25% would have the following maximum rates:
|Loan Amount||Loan Term of <7 years||Loan Term of >7 years|
|Under $25,001||7.5% (Prime + 4.25%)||8% (Prime + 4.75%)|
|$25,001 – $50,000||6.5% (Prime + 3.25%)||7% (Prime + 3.75%)|
|More than $50,000||5.5% (Prime + 2.25%)||6% (Prime + 2.75%)|
Note that, in these examples, we used the Wall Street Journal Prime rate. Lenders, however, are free to use one of three standards for their base: Prime rate, LIBOR + 3.0%, or the SBA peg rate. Each of these is very close, differing by less than a portion of a percentage point. If you have a variable rate loan, you could see your costs fluctuate over time.
Fixed Rate 7(a) Loans
Lenders may also offer fixed-rate 7(a) loan rates. Current maximum rates based on the prime rate:
|Loan Amount||Rate||Prime rate in effect on the first business day, plus:|
|Under $25,001||11.25%||6.0% (600 basis points) plus the 2.0% (200 basis points)|
|$25,001 – $50,000||10.25%||6.0% (600 basis points) plus the 1.0% (100 basis points)|
|$50,001 – $250,000||9.25%||6.0% (600 basis points)|
|$250,001 or more||8.25%||5.0% (500 basis points)|
Read the terms of your loan carefully to know just what your monthly payments will be to the lender for the life of a loan. (SBA loan rates are just a portion of the total cost.)
With 7(a) loans, most loans carry a 10-year term, however, borrowers may have up to 25 years (or useful life) when these loans are used to pay for equipment or real estate. These loans are often used for working capital, inventory, and in some cases to refinance debt.
SBA Express loan rates
SBA Express loans fall under the SBA 7(a) umbrella. They are faster and easier to apply for.
Like other 7(a) loans, rates may be fixed or variable. Fixed rate loans carry the same maximum rate as other 7(a) loans. For variable rate loans, lenders may use the optional base rates mentioned above, and may charge up to:
- 4.5% over the Prime rate on loans over $50,000 up to $350,000 ($500,000 for Export Express) making the current rate for these loans up to 7.75%.
- 6.5% over the Prime rate for loans of $50,000 or less, regardless of the maturity of the loan, making the current rate for these loans up to 9.75%.
There are other pricing options available to lenders as long as they do not exceed the SBA maximum allowable interest rate.
Normally these loans offer loans of up to $350,000, however the CARES Act temporarily raised that limit to $1 million through the end of 2020.
Are you considering the smaller, but potentially more easily-accessible SBA microloans? When repaying the SBA loan, you need to know that the rates can vary from lender to lender. Still, the SBA puts limits in place for lenders when charging interest to borrowers.
The maximum interest rates for SBA Microloans are outlined in 13 CFR 120.707(c) and are calculated based on the Intermediary’s Cost of Funds. Interest rates are established using the 5 Year Treasury Bill Rate in effect at the time funds are loaned to the Intermediary. The Interest rate charged to small business microborrowers will be based on the intermediary’s cost of funds and other credit and collateral considerations. It gets a little complicated from there, but the current maximum interest rate is:
- 7.75% over the intermediary’s cost of funds for loans of more than $10,000
- 8.50% over the intermediary’s cost of funds for loans of $10,000 or less
Note that the base rate is then discounted based on average loan size but can never be less than 0%. In the current low-rate environment, the microloan rate generally won’t be more than 7.75% for smaller loans or 8.5% for larger ones.
Microloan payments are required on at least a monthly basis and balloon payments aren’t allowed. Deferred payments may be allowed in certain cases.
The terms on these business loans will never be longer than six-year terms. Not all microloans will require collateral, making them an attractive option for small businesses who need smaller funding sources.
Microloans are truly small business loans in that the loan amount is capped at smaller loans of up to $50,000. They may be used for the purchase of “furniture, fixtures, supplies, materials, equipment, and/or for working capital.” Borrowers may not use funds to buy real estate or for the home of a business owner, unless that home is used specifically for business. Lenders may choose to allow microloans to be used to refinance debt at their discretion – when they think it will improve cash flow for the business.
SBA 504 Loans (CDC Loans)
SBA 504 Loans (also known as 504 CDC loans) offer financing through two different lenders and administered by a single lender. One half of the loan comes from the bank, but the other amount (up to 40%) comes from a Certified Development Company (CDC) – which then sells the CDC portion of the debt (also known as a debenture) to a private investor. The other 10-20% comes from the borrower in the form of a down payment.
The formula for calculating SBA 504 loan rates is complicated. The current methodology calculates the effective rate monthly based on the declining balance.
Currently, the program allows for 10, 20, and 25-year interest rates at 2.231 percent, 2.364 percent, and 2.399 percent. You will find more information on monthly 504 effective interest rates here.
There is no cap on the project size for these loans, but the maximum SBA debenture is typically $5 million. Funds are often used for large projects such as commercial real estate purchases (where at least 51% must be owner occupied, and more in some cases), expansion of facilities or large equipment purchases. The maximum repayment term is either 10, 20 or 25 years.
The rate includes the Treasury bond rate, the guarantee fee (or guaranty fee) to the SBA, the servicing fee to the CDC, and a one-time fee of 2.15% to the SBA.
What are typical SBA loan terms?
As you can see from the discussion of SBA loan interest rates here, terms will vary depending on the type of SBA loan and, in some cases, the lender’s rates. However, it’s fair to say that typically these loans offer favorable rates and terms— sometimes even better than what you can get from a bank loan.
As far as business financing options go, these loans are quite attractive but they will require strong borrower qualifications and typically take at least 1-3 months to get approved and funded.
How are SBA loan rates set?
SBA loan rates are set in a variety of ways, depending on the type of loan. The SBA publishes information about rate changes in the federal register and on their website, though it can sometimes be difficult to find specific up-to-date information. See each loan type above for more information on how rates are set.
The Small Business Administration publishes an interest rate called the optional “peg” rate (13 CFR 120.214) on a quarterly basis. This rate is a weighted average cost of money to the government for maturities similar to the average SBA direct loan. This rate may be used as a base rate for guaranteed fluctuating interest rate SBA loans.
Financial institutions that make SBA loans typically may charge up to a maximum allowable rate, which means you may get quoted different rates by different lenders depending on your creditworthiness and other factors. On the other hand, a loan made through the SBA such as EIDL or Business Physical Disaster loans will carry a rate set by the SBA.
Are SBA loans interest only?
SBA loans generally require fixed monthly payments that will amortize the loan. Interest-only payments often result in balloon payments later in the loan term, and that’s risky for both the borrower and the lender (in this case the SBA, or ultimately taxpayers). The SBA does not allow for balloon payments.
That said, there are some loan programs and circumstances that may allow for interest-only payments. For example, Export Working Capital Program loans may allow for interest-only payments.
Fixed vs variable interest rates for SBA loans
Some SBA loans will only offer fixed rates (for example, disaster loans) while others may offer either fixed or variable interest rates (for example, 7(a) loans). Some loans may carry a combination of fixed or variable interest rates. For example, with Export Working Capital loans the Lender may use a fixed rate on either the guaranteed or unguaranteed portion and a variable rate on the other portion of the loan. (The guarantee refers to the SBA guarantees which help protect the lender in the case of default.)
How can I qualify for an SBA loan?
With the exception of SBA Disaster loans, small business owners apply for these small business loans through a financial institution approved to make SBA loans. Some lenders are “preferred lenders,” which means they have final authority to approve SBA loans rather than submitting them to the SBA for approval. All lenders must make sure loans meet the minimum SBA loan requirements. These include:
- Your business must qualify as a small business, typically based on SBA size standards.
- You must not be able to get similar financing elsewhere.
- You must demonstrate you can repay the loan.
- You must have invested some of your own money into the business, even if it’s a startup.
- You must have acceptable personal and/or business credit scores. (PPP loans generally don’t require good credit.) 7(a) loans of $350,000 or less will be prescreened for a FICO SBSS score of 155 or higher (many financial institutions require a score of 160-165 or above.)
- In many cases, borrowers are required to contribute a down payment of 10%
Because credit can be a major factor in getting approved for an SBA loan, it pays to know your personal and business credit scores. Check them before you apply so there are no surprises when it’s time to meet with lenders. Lenders must use this information to determine your ability to repay, and they can turn you down without it.
You’ll find more information on SBA loan qualifications here.
How to apply for an SBA loan
Certain types of SBA loans require that you apply directly to the SBA; specifically Disaster Loans and Economic Injury Disaster Loans (EIDL) require you to complete the loan application at SBA.gov.
All other SBA loans go through lenders approved by the SBA to make these loans. While these lenders must follow SBA guidelines when approving SBA guaranteed loans, they may add their own eligibility criteria as long as they aren’t discriminatory. That means it can sometimes pay to shop around to find a lender that will work with you. Some SBA lenders may work with startups, for example, while others may not.
If you need a loan fast, or if you don’t meet the criteria (such as good credit scores), you may want to consider other options. Those may include lines of credit or term loans, business credit cards, equipment financing or even crowdfunding.