Effective August 31, 2022, SBA published Information Notice 5000-836123, concerning 7(a) Fees Effective October 1, 2022 for Fiscal Year 2023. This article will address items that have changed, specifically with regard to the 7(a) program fees, but excluding changes to the fees owed on SBA Express Loans made to Veteran-owned small businesses, as well as changes to the fee scheduled for Export Working Capital Program (“EWCP”) Loans.
The Notice concerns changes to the Lender’s Annual Service Fee as well as the SBA Guaranty Fee, plus changes in how to calculate fees for multiple loans to the same entity approved within 90 days of each other, additional fees for extensions to 7(a) loans, and additional fees for 7(a) loan increases.
Fee changes are effective for all 7(a) loans approved on October 1, 2022 through September 30, 2023.
I. Annual Service Fee changes include:
- For loans of $500,000.00 and less, the service fee shall be $0.00. This represents an increase in the size of loans subject to a zero servicing fee, from $350,000.00 to $500,000.00.
- For all loans greater than $500,000, the guarantee fee shall be 0.55%, eliminating the prior “middle tier” of loans greater than $500,000 to $1 million.
*Lenders, take note to manually adjust this fee in the 7(a) Authorization Wizard.
II. The Upfront Fees have been dramatically reduced as well from prior years. Upfront Fees for Fiscal Year 2023 shall be (excluding Export Working Capital Program (EWCP) loans and SBA Express loans made to veteran-owned businesses):
a) For loans with a maturity that exceeds 12 months, the Upfront Fees are:
- For loans of $500,000 or less: 0.00%:
- For loans of $500,001 to $700,000: 0.55%.
- For loans of $700,001 to $1,000,000: 1.05%.
- For loans $1,000,001 to $5,000,000: 3.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.
b) For loans with a maturity of 12 months or less, the Upfront Fees are:
- For loans of $500,000 or less: 0.00%.
- For loans $500,001 and greater: 0.25% of the guaranteed portion.
III. Multiple 7(a) loans made within 90 days of each other: When two or more 7(a) loans (with maturities exceeding 12 months) made to an applicant (including its affiliates) are approved within 90 days of each other, the loans are considered as one loan for the purpose of determining the percentage of guaranty.
- Annual Service Fee – will be set on a standalone basis without respect to any other loans.
- Upfront Fee – The fee for each subsequent loan will equal the amount of the fee that would have been charged on the aggregate amount of the loans, minus the fee already paid on the loans already approved/paid.
*See the Notice for examples.
As a reminder, Lenders are not allowed to split loans for the purpose of avoiding fees.
IV. Additional Upfront Fee for Extensions of Short-Term 7(a) Loans.
When the maturity of a short term 7(a) loan greater than $500,000 is extended beyond 12 months, an additional Upfront Fee is due. This represents an increase in the loan size for which an additional upfront fee is required, from the previous $350,000 limit.
As in prior years, the additional fee must be paid electronically to SBA within 30 days from the date the Lender agrees to the extension, or the total loan guaranty will be cancelled; the Lender may charge the additional fee to the borrower after the Lender has notified SBA that the maturity has been extended and has paid the additional Upfront Fee.
V. Additional Fee for 7(a) Loan Increases.
Items that have changed from prior years include the following:
- As in prior years, when a 7(a) loan is increased, additional fees are due on that amount. The additional fees are based on the rules in effect at the time the loan was originally approved.
The amount of the additional Upfront Fee due for an increase will equal what the fee would have been if the increase was part of the original loan amount, less the amount of the original fee (if already remitted). SBA provides two examples of these adjusted additional fees due.
Example 1: Loan made in FY 2022 and increased in FY 2023:
A 7(a) loan was made in FY 2022 for $350,000 with a 75% guaranty. When the loan was initially made in FY 2022, the Upfront Fee was $0, per the FY 2022 fee schedule for loans of $350,000 or less. In FY 2023, the loan was increased from $350,000 to $400,000. Even though the loan is being increased in FY 2023, the loan remains subject to FY 2022 fees, which for loans $350,001 to $700,000, is 2.77%. The amount of the Upfront Fee due to SBA is increased from $0 to $8,310 ($400,000 x 0.75 x 0.0277).
2. The Lender’s Annual Service Fee for a loan is calculated based on the guaranteed portion of the outstanding balance of the loan in accordance with the fee schedule in effect at the time the loan was approved. When the loan is increased, the fee is recalculated based on the revised loan amount.
Example: In FY 2022, a loan was approved for $950,000 and was subject to a Lender’s Annual Service Fee of 0.49% of the guaranteed portion of the outstanding balance of the loan, per the fee schedule for FY 2022. In FY 2023, the loan was increased, and the gross loan approval amount was greater than $1 million. Since the increase is being made to a loan that was approved in FY 2022 loan, the FY 2022 fees apply, and the Lender’s Annual Service Fee is increased to 0.55% of the guaranteed portion of the outstanding balance of the loan, per the FY 2022 fee schedule.
If the loan is sold on the secondary market, the FTA, as paying agent, will make the corresponding adjustment to the net note rate to the investor to reflect the correct Lender’s Annual Service Fee owed, if any, to SBA even if there is a subsequent loan increase added to the loan sale.
As in 2022, there is no additional fee relief available for 7(a) loans approved in FY 2023.
For further assistance regarding SBA fee matters, please contact the attorneys at Starfield & Smith, P.C. at (215) 542-7070.