Guaranty fee

The SBA does not lend in the 7(a) programme; it guarantees a portion of a bank's loan. The guaranty fee is what the agency charges for standing behind that portion. The lender remits it, and the loan authorization permits the lender to pass it to the borrower, which is standard practice.

How it is calculated

On the guaranteed portion of the loan, not the full loan amount, with the percentage stepping up as the guaranteed amount rises and varying with maturity — shorter maturities are treated differently from longer ones. The specific percentages and any waivers are set by the SBA and can change from one fiscal year to the next; Congress has periodically funded reductions or eliminations for smaller loans and for particular categories such as veteran-owned businesses. Check the fee schedule in force on the date of approval rather than assuming last year's.

What it is not

The upfront guaranty fee is distinct from three other charges people confuse it with:

• The annual service fee, an ongoing charge on the outstanding guaranteed balance, paid by the lender and generally not passed to the borrower
• The packaging fee charged by a lender service provider or packager for preparing the file
• The lender's own origination or closing costs

On most 7(a) loans the guaranty fee may be financed as part of the loan proceeds, so it appears in the amount borrowed rather than as cash at closing.