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SBA Loan Rates: What to Expect from Your SBA Loan Upon Default

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SBA Loan Rates: What to Expect from Your SBA Loan Upon Default

If you're applying for an SBA loan, you need to know exactly what you're signing up for as you complete the process. Here are common SBA loan rates to expect and what you can expect if you default on your SBA loan.

SBA loan interest rates and interest rates upon default.

You've probably heard about a small business administration loan or 7(a) loan, but you might feel uncertain about the details.

What separates it from other loans? How is it repaid, and what do the SBA loan rates look like?

If you're seeking out an SBA loan, you'll need to know all those details before you sign your name on any lines.

Where do you start researching? You've come to the right place. In this article, we'll tackle some of the big topics of SBA loans, giving you a nice foundation to make more informed decisions.

Read on the educate yourself about SBAs, SBA loan rates, and how you can go about obtaining your own.


What is an SBA Loan?

For starters, SBA loans are a great way to finance your business and really put your dreams in motion. They can get away with low-interest rates and flexible terms because they're guaranteed by the federal agency

They're a great way to launch a small business, but they also can be difficult to obtain. Intended for small businesses, they offer various loan amounts, from $50,000 with one type to $5 million with another.

We'll get to the differences between these types of loans in the next section.

SBA loans work a lot like a co-signer would. The loan guarantees to the providing bank that they'll cover you with a predetermined amount if you default.

When a new business owner, small business owner, or entrepreneur needs money to increase return, there's less risk involved with an SBA loan.

If you've been told you don't qualify for certain loans, the SBA loan will help open new doors for financing with low rates. There are a lot of people applying, though, so you have to be vigilant and bring all the right ingredients to the table.

Now, let's get into the various types of loans available.

Types of SBA Loans

It's not a one-size-fits-all kind of loan, as you'll see. Here are the four main types.


This one is the most recognized small business loan and the one you're likely to hear about the most. The 7(a) loan is guaranteed by the federal agency for up to $5 million.

It can be used to fund working capital, equipment, and expansion projects. It's processed through banks, specialty lenders, and credit unions.

504 Loan

This federally guaranteed loan also has a max of $5 million. The difference is this one can be used to buy facilities, required land, or machinery.

Instead of processing through banks, this loan is processed through nonprofit organizations and private-sector lenders.

Small Business Association Disaster Loans

These loans keep interest extremely low over a long-term period. The disaster loans are used to help repair the damages to private property. This is property owned by individuals, families, businesses, and other programs not covered by insurance.

The loan amount is up to $2 million. It must be used to immediately relieve and assist those affected by disasters or emergencies. They're processed through the Small Business Association.


Sometimes you don't need a massive loan to start a business. For example, it won't take you $2 million to get your cleaning service up and running.

If you need something smaller and still with low interest, then SBA microloans are for you.

These loans come in amounts up to $50,000. Similar to the 7(a) loan, the loan can be used to fund working capital, inventory, required equipment, and other costs of starting a business.

The microloans are processed through community-based nonprofits.

Demystifying SBA Loan Rates

Now that you understand the different types of SBA loans, including the cost and the allowed use, let's talk about the SBA loan rates.

Because it's what these loans are known for, you can expect low-interest rates with SBA. When we talk about the loan rate, it includes all loan fees as well as the interest rate.

Here's how it works:

  • Lenders who participate set interest rates based on the actual prime rate and then add on the spread or the markup rate.
  • If your loan is over $50,000 and your term is less than seven years, the maximum interest rate is 6.50%.
  • If your loan is over $50,000 and your term is more than seven years, then the maximum interest rate is only 7%.

With SBA loan rates this low, getting a foot up on your business is easier, whether that's expanding, improving, or beginning from the ground up.

Terms of Repayment

Besides the low SBA loan rates, these loans offer the benefit of spreading out over a long period of time.

If the money from your SBA loan is used on working capital or general daily operations, you can expect a loan term of seven years. If your money is spent on purchasing new equipment then you can expect to have a loan term of around 10 years.

Real estate purchases are huge and come in giant amounts. It's no wonder then that these loan terms tend to be a lot longer. You can have up to 25 years to pay back the loan spent purchasing real estate.

Now that you know the details, let's talk about the actual process of getting your loan.

Getting Your SBA Loan

Begin at the SBA website and educate yourself on using the government's extensive resources online.

You'll find loan application checklists that will help you gather required documentation like personal and loan history.

From there, your SBA district office can notify you of participating lenders in the area and advise you on your next steps. They can tell you how to proceed as well as how to avoid loan defaults.

Will the SBA Charge Interest on a Defaulted SBA Loan?

The Debt Collection Act of 1982 requires the SBA, unless expressly prohibited or restricted by statute or contract, to assess interest on defaulted SBA loans.

Interest, sometimes referred to as additional interest, like all interest payments, is designed to repay the government for the loss of use of funds when the debt is not paid timely and accrues from the date of the delinquency. At a minimum, the interest rate will be set at the same rate as Treasury's Current Value of Funds Rate  for the period in which the debt became delinquent. The rate is published annually, but is subject to quarterly revisions if the annual average changes more than 2%. You can, however, expect the SBA to assess the rate of interest on the loan at the time of default.

The rate of interest remains fixed for the duration of the delinquency. The agency may not compound the interest or assess interest on administrative costs and penalties.

Looking for more information on the Small Business Association and loan defaults?

Check out our blog for interesting and informative posts about SBA loan defaults and other beneficial advice.

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The client personally guaranteed an SBA 504 loan balance of $375,000.  Debt had been cross-referred to the Treasury at the time we got involved with the case.  We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.



Clients personally guaranteed SBA 504 loan balance of $750,000.  Clients also pledged the business’s equipment/inventory and their home as additional collateral.  Clients had agreed to a voluntary sale of their home to pay down the balance.  We intervened and rejected the proposed home sale.  Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.



Clients personally guaranteed an SBA 504 loan balance of $337,000.  The Third Party Lender had obtained a Judgment against the clients.  We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.

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