SBA 504 Loan Fees: Key Points for Business Owners

Loan officer discussing SBA 504 rate fees

If you’ve never applied for a business loan before, you might feel overwhelmed by the technical terms and fees involved in the process. This can be particularly true with SBA 504 loans

Lenders want to make the loan process as transparent as possible so you can get the funding you need to transform and grow. In this article, you’ll learn all about SBA 504 loan fees, as well as terms like “net debenture” and “gross debenture” that you’ll find during the SBA 504 loan process.

SBA 504 loan fees: The basics

Most business loans include some fees and SBA 504 loans are no different. These fees can include one-time charges that you may need to pay upfront, during the underwriting process, or at closing. Other fees are rolled into the loan total and paid over the life of the loan.

Before we break down the fees for an SBA 504 deal, here’s some information about SBA 504 loans that can help you understand several of the terms:

  • An SBA 504 project is made up of three components: owner equity (typically 10% of the project costs), a bank loan (50%) and funding from a Certified Development Corporation, also known as a CDC (40%).
  • When you go to your personal or commercial bank, you’re able to deposit and withdraw funds. Banks can also lend you the money directly. CDCs aren’t banks and don’t hold funds. When loans are made through CDCs, the portion that they provide is raised through other means, such as a “debenture” or a bond sale.
  • When you apply for an SBA 504 loan, you’re given a “net debenture” amount. This is the total amount that a CDC will provide for your loan.
  • You’ll also be given a “gross debenture” amount, which is higher than the “net debenture.” This is the amount that the CDC will provide plus the SBA administrative costs.

For SBA 504 loans through a CDC and a partnering bank, borrowers may also be charged:

  • A one-time, $1,500 application fee
  • A commitment/closing fee, which is up to 1% of the gross-debenture amount or a maximum of $10,000. This acts as a deposit early in the process and is later used to pay the CDC attorney for related closing costs.

What are the SBA 504 loan fees and how are they calculated?

The easiest way to explain the fees, how they’re calculated, and how they impact the gross debenture is with a sample fee chart.

Keep in mind that the calculations for your own SBA 504 loan fees will depend on the amount you borrow, as well as rates for fees at the time of your application. Your CDC and the bank that’s partnering on your SBA 504 loan, will provide this information to you.

Here’s an example of the fee schedule for a $1 million deal. As noted above, these are part of the SBA administrative costs that are included in your loan to make up the gross debenture:

Net debenture$1,000,000Fee %
SBA guarantee fee $5,000.000.5000%
Funding fee $2,500.000.2500%
CDC processing fee $15,000.001.5000%
Closing costs $2,500.00
Underwriters’ fee $4,000.000.4000%
Total fees $29,000.00
Gross debenture $1,029,000.00
  • The SBA guarantee fee is the percentage of the net debenture that the SBA charges to provide guarantees to lenders. Although it’s an additional fee for borrowers, the guarantee is the cornerstone of the SBA program. It’s the reason why lenders are able to make loans to small businesses that require flexibility in funding.
  • The funding fee and the CDC processing fee are administrative costs that are passed onto the borrower for originating and processing the loan package.
  • The closing costs are the part of the commitment fee that are used toward filings and processes that are necessary for the deal to close and be officially recorded.
  • The underwriters’ fee allows lenders to pay for the costs associated with organizing and analyzing the loan application package to get it on its way to a decision.

Common borrower questions about SBA 504 loan fees

In addition to the information provided here, these are some of the most frequently asked questions about SBA 504 loan fees:

Will the application fee be refunded?

If and when the loan closes, this is refunded to you after the debenture sale. If the loan doesn’t close, then the application fee is kept by the lender.

Why am I paying two commitment fees?

With an SBA 504 loan, there are two loans being made: One through your CDC (for 40% of the project cost) and the other through the bank you’re partnering with (for 50% of the cost). Because these are two separate loans from separate institutions, two commitment fees are required.

Why is my loan amount higher?

While there are some loan fees that are paid outright (such as attorney costs and bank commitment/origination fees), other fees are rolled into the loan total and paid over the course of the loan (like your SBA administrative fees). Although these slightly raise the monthly payment, this method saves you a lot of money upfront.

Knowledge is power and Pursuit can help

When you’re applying with Pursuit or any other lender for business loans, the better you understand the process, the easier it will be for you. If you have additional questions, we encourage you to visit our business resources or contact us – we’re here to help.

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