It’s about to get more expensive for small businesses seeking government-backed loans.
The SBA said in a recent notice that it’s reinstating up-front fees on 7(a) loans for the remainder of the fiscal year ending Sept. 30, in what business lending platform Funder Intel described as a “significant policy shift.” The announcement reverses previous policy that waived up-front fees on any loans of $1 million or less.
Starting Thursday, the SBA will tack a guarantee fee onto long-term loans, or those with a maturity greater than 12 months. The scale starts at 2% on loans totaling $150,000 or less, and increases to 3% for loans between $150,001 and $700,000.
The fee on loans from $700,001 to $5 million will be 3.5% of the guaranteed portion up to the first $1 million, then 3.75% on the portion over $1 million. Short-term loans will have an up-front fee of 0.25%.
The 7(a) loan program is “SBA’s primary business loan program” and provides guaranties to lenders writing loans to small businesses, according to the agency’s website. These SBA-backed loans of up to $5 million are meant to help small businesses buy real estate, purchase machinery and equipment, and refinance debt, among other things.
SBA officials have said the up-front fees are needed to “protect the zero-subsidy status of the program, and to preserve its solvency on behalf of taxpayers,” according to the National Association of Government Guaranteed Lenders.
New SBA Administrator Kelly Loeffler noted in a memo after taking office that the agency “will review all options to protect the solvency of its lending programs,” including the 7(a) loan program, as part of efforts to eliminate “wasteful spending” and crack down on fraud.
The SBA didn’t immediately respond to CFO Brew’s request for comment.
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