What are typical closing costs for SBA loan?
When considering an SBA loan, one of the most important aspects to understand is the closing costs associated with the loan. These costs can vary widely depending on the lender, the loan amount, and the specifics of the business. In this article, we will explore the typical closing costs for SBA loans and provide insights into what you can expect during the loan process.
Understanding SBA Loan Closing Costs
Closing costs for SBA loans encompass a variety of expenses that must be paid before the loan is finalized. These costs are generally categorized into two main groups: lender fees and third-party fees. It’s important to note that while the Small Business Administration (SBA) guarantees a portion of the loan, the actual lender, such as a bank or credit union, is responsible for the closing costs.
Lender Fees
Lender fees are charges imposed by the financial institution providing the SBA loan. These fees can include:
1. Origination Fee: This fee covers the lender’s costs for processing the loan application and underwriting the loan. It is typically a percentage of the loan amount, ranging from 0.5% to 3.5%.
2. Guarantee Fee: The SBA charges a guarantee fee for loans that exceed $150,000. This fee is calculated as a percentage of the guaranteed portion of the loan and can range from 0.25% to 3.75%.
3. Underwriting Fee: This fee covers the lender’s costs for reviewing the loan application and ensuring that the borrower meets the necessary criteria.
Third-Party Fees
Third-party fees are charges for services provided by outside entities during the loan process. These fees can include:
1. Appraisal Fee: An appraisal is required to determine the value of the property being used as collateral for the loan. The fee for this service can vary depending on the property’s location and size.
2. Credit Report Fee: A credit report is necessary to assess the borrower’s creditworthiness. The cost of obtaining a credit report can range from $10 to $50.
3. Title Search and Insurance: These fees cover the cost of searching the public records to ensure the property’s title is clear and obtaining insurance to protect the lender’s interest in the property.
4. Legal Fees: Attorneys may be required to draft and review loan documents, which can incur legal fees ranging from a few hundred to a few thousand dollars.
5. Environmental Assessment Fee: If required, this fee covers the cost of an environmental assessment to ensure the property meets certain environmental standards.
Estimating Closing Costs
To estimate the closing costs for an SBA loan, you can use the following formula:
Closing Costs = Origination Fee + Guarantee Fee + Underwriting Fee + Appraisal Fee + Credit Report Fee + Title Search and Insurance + Legal Fees + Environmental Assessment Fee
It’s important to note that these fees are just estimates, and the actual costs may vary. To get a more accurate estimate, it’s best to consult with your lender or a financial advisor.
Conclusion
Understanding the typical closing costs for SBA loans is crucial for any business owner seeking financing. By knowing what to expect, you can better prepare for the loan process and ensure that your business is financially ready to take on the responsibilities of the loan. Always remember to discuss the closing costs with your lender and ask for a detailed breakdown of all fees involved.
