SBA 504 Fees Drop, 7(a) Fees Rise

Each year SBA reviews the fees payable to SBA by certified development companies (CDCs) and 7(a) participating lenders (Lenders) as well as the borrowers to determine if they are sufficient to cover the estimated costs of the 504 and 7(a) loan programs.

The SBA announced the revision of the ongoing fees for both programs for loan approved during FY 2007. These fees are imposed under Section 503(b)(7) of the Small Business Investment Act and Section 7(a)(23) of the Small Business Act, respectively.

For 504 loans approved on or after October 1, 2006, the “ongoing guarantee servicing fee” paid by borrowers to SBA will be 0.01 8 percent (1. 8 basis points) of the outstanding balance of the 504 loan. This is a decrease from the 0.192 percent charged last year and means a lower effective rate to 504 borrowers.

 For 7(a) loans approved on or after October 1, 2006, the “yearly servicing fee” due from participants to SBA will be 0.55 percent, up from 0.545 percent last year, of the guaranteed portion of the outstanding balance on the 7(a) loan. This will cause an increase in 7a borrowers’ effective rates.

The SBA charges these servicing fees in order to cover anticipated loans losses and to maintain what the SBA refers to as “zero subsidy rate” (in other words, the government does not have to pay for loan losses). Because loan losses have been declining year by year for the 504 loan program, its servicing fee has declined year by year for the last ten years. On the other hand, the SBA anticipates more losses in fiscal year 2006/2007 for the 7a guaranty program, hence the increase in the 7a servicing fee. It is to be noted that the fees to be charged are not retroactive, but pertain only to those SBA loans that are authorized October 1, 2006 and after.

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