The Small Business Administration provides a wide range of loan options, with available loans ranging from microloans capped at $50,000 to international trade loans capped at $5 million. If you're interested in an SBA loan, it's a good idea to understand what the lender rates and terms are likely to be, how financing and guarantees work, and what fees you might encounter. Here are three things every borrower should know about SBA lender rates.

Establishing Rates

Rates for SBA loans are based on the prime interest rate plus a certain additional percentage. The maximum for most loans ends up being the prime rate plus 4.75%, although the amount tacked on above the prime rate may be lower for larger loans. A ballpark range based on published rates from March of 2020 puts the expected rates for many loans between 5.5% and 8%, depending on how long the borrower takes to pay it off.

Note that banks do have the right to use the London Interbank Offer Rate as the basis for the loan rather than the prime lending rate from the U.S. However, this is a fairly rare arrangement as most banks prefer to make SBA loan terms easy for borrowers to follow.

Terms for SBA loans range from 7 to 20 years. It is possible to pay the shorter-term loans sooner than the term, though.

Financing and Guarantees

A percentage of every SBA loan is guaranteed by the U.S. government. This means the government will make the lender whole on that portion of the loan if the borrower defaults entirely. Consequently, banks tend to be more comfortable dealing with borrowers who are backed by the SBA.

In order to set up financing, you should visit your bank or credit union. Tell someone at the bank that you wish to speak with the officer in charge of SBA financing. They will sit down with you and explain which options they offer.

Applicable Fees

The lender is supposed to pay a guaranty fee to the SBA on most loans. Many institutions, however, pass this cost along to the borrower. The SBA does place a cap on the maximum financing costs for a loan. If you have concerns about whether you're being charged too much, directly contact the SBA.

Loans to purchase real assets, such as land, equipment, or buildings, may incur long-term financing fees. These are available in 10- or 20-year terms with fixed fees. However, the fee will reset every 5 years based on the remaining principal.

To learn more about SBA lender rates, reach out to a local lender.