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If you’re thinking of applying for a coveted SBA loan to fund your business, an SBA loan calculator could help you estimate how much you can expect to repay on a monthly basis. One benefit of SBA loans is that they have longer repayment terms compared to other small business loans. This often results in smaller monthly payments, giving business owners time to invest the funds in the business and turn a profit on that investment before paying it all back.
There are three main factors to an SBA loan payment: loan amount, interest rate and loan term. Using an SBA loan calculator to figure out how much money you can afford to borrow is the first step to determining the monthly payments. SBA loans, specifically the popular SBA 7(a) loans, typically have a maximum amount of $5 million, providing business owners with the ability to secure a large amount of funding for their business.
Once you’ve determined the amount you’d like to borrow, you’d need to input the percentage of your loan rate into the SBA loan calculator. Interest rates for SBA 7(a) loans can be either fixed or variable. Usually, the borrower and the lender can negotiate interest rates, but the SBA sets a maximum spread to protect borrowers — a spread is essentially a percentage that a bank can make off a loan.
For variable 7(a) loans that have a term of less than seven years, the spread on SBA interest rates is between 2.25% and 4.25%; add that to the current Prime rate for your total interest rate. A term that is seven years or more will be subject to slightly higher SBA loan interest rates, but the spread can be no more than 4.75%. With fixed rate loans, the SBA uses a multi-step process to determine the maximum fixed interest rate.
When you’ve established an amount and figured out an interest rate, you can fill in the appropriate fields on the SBA loan calculator. The results should reveal the monthly payment you may receive. SBA loan terms normally have a span of seven, 10 or 25 years, depending on the specifics of the loan. While longer term loans allow for businesses to borrow more, they may be costlier over the long term.
The SBA loan calculator above does not reflect calculations related to the Paycheck Protection Program (PPP), the SBA initiative to aid business owners struggling to survive the coronavirus pandemic. You would need to use a separate PPP calculator to make any estimations regarding your PPP loan.
The limitations of the calculator itself would likely be related to your interest rate. If you use the calculator to estimate a ballpark loan payment before receiving your SBA loan, your actual monthly payments could be higher or lower, depending on the interest rate you get.
There are other potential limitations related to SBA loans themselves. One unique aspect about SBA loans is that they are partially guaranteed by the government — this means that the SBA will use federal money to back a percentage of the loans to protect lenders from borrowers who default. While the SBA covers a good portion of this guaranty, lenders are responsible for the remaining portion, which is assessed as a fee. Lenders have the option to either incur the fee or pass it along to the borrower, which could be incorporated in the total loan amount. If the lender chooses to forward the fee to the borrower, this will change the borrower’s monthly SBA loan payment.
SBA loans could also take a few months to fund. If you need funding fast for a short time or a one-time need, a loan through lenders on the LendingTree platform might be a better option.
The guaranty fee will vary based on the loan amount and term, but thanks to the SBA, there are certain guidelines that lenders must follow if they do choose to integrate the guaranty fee into the total SBA loan amount. Depending on the loan amount, the fee can run anywhere between 0.25% to 3.5%, though qualified veterans would not pay a guaranty fee for certain types of 7(a) loans. For SBA loans that are more than $1 million, the funds over $1 million are subject to an additional fee of 3.75%. The main factor that contributes to the limitation of the SBA loan calculator is that borrowers would not know if their lender plans to take care of the guaranty fee until they are ready to discuss the terms of the loan.