The SBA guaranty fee, and who ends up paying it

Two fees, and the difference between them is worth knowing before you read a term sheet.

The upfront guaranty fee

This is the guaranty fee proper, the charge for the guarantee itself. Three features shape it:

The SBA sets and republishes the schedule, and in some years has reduced or waived fees on smaller loans or for particular categories of borrower, including veteran-owned businesses under a specific program. Whether any reduction applies in your year is published by the SBA and by nobody else you should trust.

The ongoing annual service fee

The lender pays the SBA an annual fee on the outstanding guaranteed balance for as long as the loan lives. This one is different in a way that matters: the lender may not bill it to you separately.

That does not make it free. It is a cost of the loan to the lender, and it is priced into the spread you are quoted. When you compare an SBA quote with a conventional quote, this fee is already inside the SBA rate.

504 fees work differently

A 504 has its own set: a CDC processing fee, an SBA guarantee fee on the debenture, a funding fee, an underwriter's fee, and an ongoing servicing component built into the effective rate. Most are financed into the debenture rather than paid in cash. Ask the CDC for a full itemization with the effective rate shown after all of them, and ask the bank separately for the first-mortgage fees, because those are not the CDC's.

What financing the fee actually costs

"Financed into the loan" sounds like a convenience. It is a small loan at your loan's rate, for your loan's term.

Over 120 months that differential totals about $20,240 for a $12,500 fee: roughly $7,740 of interest on top of the fee itself.

That is not automatically the wrong choice. Closing cash is frequently the scarcest thing a borrower has, and $12,500 kept in the business for ten years may be worth more than $7,740. But it is a decision, and it is usually presented as a formality. Ask for both payment figures side by side and make it deliberately.

Where each number should appear on your paperwork

Three documents, three different things to check.

What to ask, and what to check on your documents

1. Ask for the fee as a dollar amount, not a percentage. The percentage applies to the guaranteed portion, so the dollar figure is the only number that answers the question.
2. Ask whether it is financed or paid at closing, and what the financed version costs over the term.
3. Check that any fee described as an SBA fee actually is one. Lender packaging fees, agent fees and third-party costs are separate items with their own rules, and they are sometimes presented as if they came from the government.
4. Any fee paid to a packager or broker for helping you get the loan must appear on the SBA fee disclosure form. If it does not, ask why.

The fee is not usually the deciding factor in an SBA loan. The maturity is. But you should know exactly which of the numbers on your closing statement went to the government, which went to the lender, and which went to somebody else.

One more thing worth confirming early: whether your lender charges a packaging fee of its own, what it covers, and whether it is refundable if the loan does not close. That fee is the lender's, not the government's, and the two are easy to confuse on a closing statement where both appear as a line item with the word "fee" in it.