This story was updated November 13, 2020 to reflect the new 504 debenture rates.
Small Business Administration (SBA) loans are among the most popular and reliable ways for small businesses 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 2020
- 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: usually 2.75% – 4%
- SBA 7(a) current rates: 5.5% to 11.25%
- SBA Express loan rates: up to 7.75% or 9.75%
- SBA Microloan current rates: 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 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 up to 30 years. (It appears that loans are being offered with a 30 year repayment term.)
SBA Disaster loan rates
The Disaster loan program has been around for many years, and there are other 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 4% (2.75% for private nonprofits).
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. These loans have no minimum and offer up to $5 million in funding for qualified businesses.
Rates for the SBA 7(a) loans are broken down by loan amount and loan term. At the time of this writing, the current prime rate is 3.25%, resulting in the following variable rates:
SBA 7(a) Loan Rates
Variable rate loans based on the July 1, 2020 prime rate of 3.25%.
|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.
Lenders may also offer fixed 7(a) loan rates. Current rates are:
|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.
Lenders 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. (This does not
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 current maximum interest rate is:
- 7.75% for loans of more than $10,000
- 8.50% for loans of $10,000 or less
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 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. The SBA announced the new debenture rates on November 13, 2020.
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 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.
“name”: “How are SBA 504 Loan Rates determined?”,
“text”: “As explained before, the CDC loan financiers have to follow SBA guidelines, but the lenders can choose their own loan rates under the limits. Since the program is designed to help businesses invest large amounts of money in real estate or equipment, however, the rates are made low to be competitive. While they do fluctuate with market forces, they can often be lower than the home loans you see on the market today.
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.”
“name”: “How Can I Qualify for an SBA Loan?”,
“text”: “Because preferred lenders participate in the SBA program, and each bank is responsible for issuing and collecting on the loan, they can have slightly different SBA loan requirements. They’ll commonly ask that a business meet these standards, however:
- You must have invested some of your own money into the business, even if it’s a startup.
- You must have tried to get funding through traditional sources or have been unable to meet the requirements for applying for other funds. (The SBA likes to be your last effort.)
- You must have proof that you can maintain the cost of your business and that you can repay the loan. This comes with sales reports, credit card sales, invoices, etc. The bank needs to know you are worth the credit risk and can sustain payments.
- You must have good personal and business credit scores. If you don’t have well-established business credit, excellent personal credit and good sales numbers might qualify you.
Because credit is such a major factor in deciding to approve you for an SBA loan, it pays to know your personal and business credit scores. Get these ahead of filling out your loan application, so that you don’t have any surprises when it’s time to meet with lenders. Banks must use this information to determine your ability to repay, and they can turn you down without it.”
“name”: “Is there a formal SBA loan rates calculator I can use?”,
“text”: “You don’t really need a calculator for most SBA loans, as they are transparent about their fees. Each lender may set their own rates and additional fees allowed under the program terms. To know exactly what a loan will cost you, see the terms of the lender program you apply to directly and ask what your monthly payments will be. Some online lenders that you may find through the SBA program could have more tools, as well.”
“name”: “How the SBA loans 2019 differ from previous years?”,
“text”: “Rates change often, but the SBA tries to set their rates at a standard that doesn’t fluctuate often. While prime (the rate set by the Federal Reserve) can change many times a year, portions of the business loan programs don’t change as often. Each year may see increases, as the government responds to market influences. 2019 saw higher rates than 2018, for example, due to the Fed raising rates in 2018. The lenders have to keep up with rates, so things may be different by next year.”
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 140 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.
More about SBA loan fees
In addition to the loan rates and maximum allowable interest rates, most SBA loans have a guaranty fee. These are determined by the amount you borrow and apply to the guaranteed portion of the loan. These guaranty fees may be for up to 3.75% of the guaranteed portion of the loan.
The CARES Act amended the Small Business Act so that for all SBA Express loans to veteran-owned small businesses approved on or after March 27, 2020, the upfront guaranty fee will permanently be zero.
There may be other costs as well so it’s important to understand the full SBA loan terms.
SBA loan calculators
There are a couple of SBA loan calculators you may find helpful:
Nav created the first calculator for the Paycheck Protection Program (PPP) loan.
You can also use an SBA loan payment calculator to estimate your SBA loan payment. To find out exactly what one of these loans will cost you, talk to your financial institution.
As mentioned earlier, to get an SBA loan, you will need to work with a lender that offers the type of loan you want and works with businesses like yours. Not every SBA lender is the same. All must follow SBA guidelines in order to make sure sure they can collect on the guarantee if you, the borrower, don’t pay back your loan. But that doesn’t mean they have to work with every qualified borrower that walks through the door. As long as they don’t discriminate on a prohibited basis, lenders may impose more stringent requirements (such as higher credit scores, for example) or work with businesses in certain industries. That means that you will have to find the right lender for your loan. You can do this by contacting various lenders, using the SBA Lender Match service (which is similar to contacting a bunch of different lenders) or work with an intermediary that can help match you to lenders looking for borrowers with qualifications similar to yours. The latter approach can be simpler and most effective.
- COVID Disaster Loans Vs. Paycheck Protection Loans
- Avoid Small Business Lending Scams and Fraud Related to COVID-19
- What is the Economic Injury Disaster Loan Grant and What Does It Mean for Small Business?
- COVID-19 Resources and Guidance By State
- Frequently Asked Questions About CARES Act Paycheck Protection Loans for Small Business
- Frequently Asked Questions About Applying for SBA Disaster Loans Due to Coronavirus
- Prepare Your Application for the SBA Paycheck Protection Program