Commercial lending through the Small Business Administration has many advantages for your business. But you will want to be sure that you understand the guarantee fee and other loan fees.

Any time you are researching commercial lending options, you need to be fully aware of the entire fee structure of each lender to be certain that you are selection the best option to meet your needs and your budget. In most cases the SBA is not the lender, but they do offer the lender a guarantee on certain types of loans. The cost of the guarantee is then passed on to the borrower. But the benefits to this type of loan are the lower interest rate and the longer repayment term.

Normally the SBA will guarantee between 75% and 85% of your loan and that is the amount that they use to calculate the guarantee fee. A very short term loan of less than a year will have a rate of .25% for the guarantee while longer term loans can be calculated at a rate up to 3.75%. This process is in place for all SBA 7a loans. There are also some additional fees that can apply to a 7a loan as well as other loans offered through the SBA.

There is an origination fee that can range from .5% up to 3.5%. The percentage that you will pay is determined by the lender that you are using as well as the size of the loan that you have requested. You will also be paying a loan packaging fee. This is a service that is provided to you to help improve your chances for approval during the commercial lending application process. In most cases borrowers are not familiar with the process or the amount of documentation that is required for approval. The application package represents your first impression to the lender and is critical in a successful loan. The broker fees and service fees are fairly self-explanatory. These are similar to any loan that you would ever apply for and it covers mostly the administrative side of the process.

Understanding Closing Costs

Commercial lending closing cost tend to cover a more broad scope than you might think. These are the fees that pay for any appraisal that might be needed, determining the valuation of your business, an environmental report for any property that might be included in the deal, the title fee for the property and any legal fees. It is very important that an attorney review all of the loan documents prior to you signing them. This ensures that you are protected and that the documents are all legally binding to all parties involved.

When the Fees Are Paid

As you read through the list of fess that can be included in an SBA loan, you might begin to worry about the total cost and how you might be able to afford to pay the amount up front. But another benefit of working with the SBA for a loan is the fact that the guarantee fees and origination fees are rolled into your loan and paid over the term of the loan. The only fees that you must prepay are the appraisal fee, the business valuation fee and the environmental fee. The title fee, loan packaging fee and the attorney fees are normally paid at the closing of the loan.