You’ve done it! You’ve made it through all the necessary hoops and applications and are about to close the deal on your SBA loan.
When suddenly, the thought hits you, are there any closing costs involved? The last thing any of us want is to be hit by unexpected fees, especially when we borrow money!
It can cause you to panic and become nervous about the upcoming loan. You start scanning the fine print and frantically searching for the answers you need, worried about what the extra charges could be!
But there is no need to panic, for we are here to melt all your worries away. We will walk you through the potential closing costs of an SBA loan, so you know exactly what to expect. So sit back, relax, and let us tell you all you need to know about the closing costs of an SBA loan!
Are there closing costs on a business loan?
Typically, there are closing costs on a business loan that cover expenses involved with processing the loan.
These go along with any processing fees you have already had to pay while applying for the loan (such as underwriting and attorney fees). Generally, these will include business valuations or appraisals for commercial real estate.
When you apply for your loan, you generally pay a deposit of either 1% of the proceeds or $2,500, whichever is the lower cost for your loan.
The deposit is then returned to you, often with deductions. These deductions are usually the escrow fee, but there are also closing costs that can be deducted from here.
As we mentioned earlier, there is a range of things you can be charged for in closing costs, and they all depend on the loan you have taken out.
How much you have borrowed, and the circumstances surrounding the loan will dictate what closing costs you are charged with or your deposit is deducted.
Most commonly, we see the fees including the following:
- Appraisal fees
- Business valuations
- Environmental assessment fees
- Lender points
- Lender bridge loan points
- Buyers and lenders title insurance
- Flood insurance
- Hazard insurance
These are just some of the fees we can see deducted as the loan agreement draws to a close. These should be made clear to you, and you can ask for an itemized breakdown of costs so you know where your money is going.
As you can see, these fees vary quite wildly and will depend on your business and the nature of your SBA loan.
There are also some miscellaneous fees that you might encounter as you close your SBA loan. IRS verification. Tax service fees, flood certifications, UCC filing, credit reports, administrative expenses, corporate status certificates, and overnight mail fees could all be deducted.
It’s worth speaking to your loan lender and others involved about the potential closing costs so that you have a clear idea of the costs before you begin. It’s worth noting that some of these fees can crop up along the way, too, like flood and hazard insurance.
Try to go in with an open mind and expect some closing costs to avoid any surprises down the line. You can always jot down a few closing costs you think you might be charged with to prepare yourself!
What are the typical closing costs for an SBA loan?
As we have mentioned earlier, the amount you can be charged or deducted as closing costs varies from loan to loan. These costs will come out of your $2,500 or 1% deposit, along with your escrow.
Sometimes it can take the whole amount; other times, it does not. We don’t often see the amount spilling over, but it's always worth setting aside a few hundred dollars in case you are the exception to the rule!
As with other costs, you can have them rolled into the loan payments if needed, so they are spaced out for you instead.
It’s worth noting that changing the loan amount will impact the interest you will have to pay back. If you can, it's best to pay the closing costs upfront to avoid any issues down the line.
Generally speaking, you are looking at $2,500 as a closing fee, but we can’t stress this enough; it varies from loan to loan! This number should be treated as an average rather than the set in stone cost to avoid any disappointment if you need to spend more!
If you want more information about your specific SBA loan closing costs, it’s worth speaking to your lender or attorney. They will assess the closing costs that will be needed and provide you with a more concrete number.
As we mentioned, these are subject to change, but the professionals dealing with your loan should have a good idea of the closing costs on their way to you!
We recommend considering the closing costs and fees that may be required for your loan. For example, suppose your business is located on a floor area.
In that case, you will probably be required to have flood insurance or certificates regarding this, meaning your closing costs could be more than other businesses not on a flood risk site.
Do banks get a fee for SBA loans?
No, banks do not get a fee for SBA loans. Typically, there is a fee placed on the SBA guaranteed loan already. This fee is determined by the SBA themselves and is currently set at 3% or 2.25%.
The fee varies depending on the cost of the loan. As with all things in life, that fee is subject to change and could rise and fall in line with inflation.
As there is already a fee in place, lenders cannot charge and get a fee for the SBA loan. But that doesn’t mean they don’t find a way to sneak some charges in!
Instead of a fee, you might see packaging fees on your loan. Here the bank is effectively charging you a handling fee for their involvement in the SBA loan.
For the bank to charge you a fee on the SBA loan or a packaging fee as they are known, the fee must reflect the services the bank has performed and be deemed reasonable.
These fees must also be consistent with the fees the bank charges on other loans of the same or similar size that aren’t SBA-guaranteed commercial loans.
These restrictions prevent lenders from profiting too much from schemes that government departments support.
It also prevents you from incurring any additional fees when borrowing money. The last thing you want is the cost to mount up, especially when you need to pay the money back.
The bank can charge fees in other places, though. Late fees are an excellent way for lenders to make a profit and ensure that they receive the money they are owed on time. We see these fees on all loans, and your SBA loan is no different.
There will be a late payment fee stated in your loan agreement, so be sure to check this figure carefully. Sometimes it will be a flare rate, a percentage of the missed payment, or even a daily charge until the money is paid.
It’s best to avoid these late payment fees as much as possible. Not only are they extra charges for you to pay, but missed and late payments can negatively affect your credit score! Ensure that you are making all your payments on time and aren’t falling behind to avoid any issues.
That being said, circumstances do change. If you find yourself struggling to pay or that your next payment will be late, speak to your lender about it.
Upfront honesty is often appreciated, and you can find a way to change the payments to suit you. It's in both your best interest and the lenders to ensure the money still comes in every month!
And just like that, we have reached the end of our SBA loan journey together!
As you can see, the typical closing costs for an SBA loan are roughly $2,500. As we have repeatedly said today, these costs will vary from loan to loan, so be sure to speak to your lender or lawyer if you have any questions about your specific closing costs.
No matter the size of your small business and the loan you are taking out, you can expect some closing costs, but these shouldn’t be too much!