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SBA loans are an affordable, long-term small business loan that are highly popular among small business owners. Since the funds can cover a number of business necessities, it’s important that borrowers use an SBA loan calculator to understand how much they will have to pay back on a monthly basis while simultaneously turning a profit on their investment. Fortunately, one huge benefit of SBA loans is that they have the longest terms compared to other small business loans. This often provides smaller monthly payments on the loan, giving business owners time to invest the money and turn a profit on that investment.
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There are three main factors to an SBA loan: loan amount, interest rate, and loan term. Using an SBA loan calculator to figure out how much money to borrow is the first step to determining the monthly payments. SBA 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 small business owners have determined the amount they would like to borrow, they need to discover SBA loan rates and input the percentage into the SBA loan calculator. These can either have a fixed or variable structure. Usually, interest rates can be negotiated between the borrower and the lender, but the SBA sets a maximum spread to protect borrowers. A spread is essentially a percentage that a bank can make off of a loan. So, for loans that have a term that is less than seven years, the spread on SBA interest rates will be no more than 2.25%. A term that is seven years or more will be subject to slightly higher SBA loan interest rates, but the spread will be no more than 2.75%. Current SBA loan rates generally fall anywhere between 6-13%.
Once the borrower has established an amount and figured out the average interest rate, they are able to decipher how long it will take them to pay back the loan. SBA loan terms normally have a span of 7 years, 10 years, and 25 years. While longer term loans allow for businesses to borrow more, they are also costlier over the long-term. Luckily, there is always the option to accelerate the loan’s term by adding extra payments on a monthly basis.
Once the loan amount, interest rate, and loan term are discovered, the user can fill in the appropriate fields on the SBA loan calculator. The calculated results should reveal the user’s monthly payment they are wishing to receive.
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 up a percentage of these government business loans in order to protect lenders from borrowers that could potentially default on the loan. While the SBA covers a good portion of this guaranty, the 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 monthly SBA payments.
The guarantee 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% to 3.5%. SBA loans that are more than $1 million are subject to an additional fee of 0.25%. The main factor that contributes to the limitation of the SBA loan calculator is that borrowers will not know if their lender will take care of the guaranty fee until they are ready to negotiate the terms of the loan.