How Do the Fees for USDA B&I Loans Compare to SBA 7(a) Loans?

**Introduction**

When considering business financing options, it’s crucial to understand not only the interest rates but also the fees associated with different loan programs. USDA Business and Industry (B&I) loans and SBA 7(a) loans are two popular options for business financing. This blog compares the fees for these two loan programs, helping businesses make well-informed decisions.

**Overview of USDA B&I Loans and SBA 7(a) Loans**

- **USDA B&I Loans**: These loans are designed to support rural businesses by providing financial backing to improve economic health in rural areas. They help create jobs, enhance infrastructure, and stimulate economic development.

- **SBA 7(a) Loans**: The SBA 7(a) loan program is the Small Business Administration's primary lending program, offering financial assistance to small businesses for various purposes, including working capital, equipment purchase, and real estate acquisition.

**Comparing Loan Fees**

**USDA B&I Loan Fees**

1. **Guarantee Fee**
   - **Upfront Fee**: The USDA charges an upfront guarantee fee, typically a percentage of the loan amount. As of recent guidelines, this fee is usually around 3% of the guaranteed portion of the loan.
   
2. **Annual Renewal Fee**
   - **Ongoing Cost**: An annual renewal fee is charged on the outstanding principal balance of the guaranteed portion of the loan. This fee is usually about 0.5% of the outstanding balance.
   
3. **Other Fees**
   - **Packaging and Application Fees**: Lenders may charge fees for loan packaging and application processing, which can vary based on the lender and the complexity of the loan application.

**SBA 7(a) Loan Fees**

1. **Guarantee Fee**
   - **Upfront Fee**: The SBA also charges an upfront guarantee fee, which varies based on the loan amount and the loan term. For loans up to $1 million, the fee ranges from 2% to 3.5% of the guaranteed portion. For loans over $1 million, the fee can be higher.
   
2. **Annual Service Fee**
   - **Ongoing Cost**: An annual service fee is charged on the outstanding balance of the SBA-guaranteed portion. This fee is typically around 0.55% of the outstanding balance.
   
3. **Other Fees**
   - **Packaging and Application Fees**: Similar to USDA B&I loans, lenders may charge fees for loan packaging and application processing. These fees can vary widely depending on the lender and the loan specifics.
   - **Prepayment Penalty**: For loans with terms of 15 years or more, prepayment penalties may apply if the loan is paid off early within the first three years.

**Comparing the Costs**

1. **Upfront Costs**
   - **USDA B&I Loans**: Typically have a guarantee fee of around 3%, making the initial cost predictable but substantial.
   - **SBA 7(a) Loans**: Guarantee fees vary more widely, with lower percentages for smaller loans and higher percentages for larger loans, making the upfront cost potentially higher for larger loans.

2. **Ongoing Costs**
   - **USDA B&I Loans**: The annual renewal fee is generally lower, at around 0.5% of the outstanding balance.
   - **SBA 7(a) Loans**: The annual service fee is slightly higher, at around 0.55% of the outstanding balance.

3. **Additional Fees**
   - **USDA B&I Loans**: May have additional fees for packaging and application, but these are not standardized and depend on the lender.
   - **SBA 7(a) Loans**: Similarly have packaging and application fees, and may include prepayment penalties for longer-term loans.

**Conclusion**

While both USDA B&I and SBA 7(a) loans have associated fees, the specific costs can vary based on the loan amount, term, and lender policies. USDA B&I loans have a predictable upfront guarantee fee and lower ongoing costs, while SBA 7(a) loans offer variable guarantee fees and slightly higher annual service fees. To navigate these options effectively, partnering with an experienced lender like Atlantic Commercial Mortgage Broker can provide the expertise and support needed to secure the best financing for your business. Atlantic Commercial specializes in both USDA B&I and SBA 7(a) loans, ensuring businesses receive tailored solutions to meet their unique financing needs.