The lenders are charged a one time fee of .5% of their permanent loan amount. So, if the total project was $1,000,000 and the lender's portion was 50% or $500,000, their participation fee would be $2500.00. This fee goes into the SBA loan loss reserve fund.
The borrowers are charged 3% on the SBA 504 loan amount as upfront fees, that are financed as part of the loan. On the $1,000,000 project scenario, where the SBA 504 loan is 40% or $400,000, the upfront fees would total $12,000 resulting in a gross loan amount, including the fees, of $412,000. Of these 3%, 1/2% goes to the SBA loan loss reserve fund. 1 1/2% goes to the CDCs as an origination fee. The final 1% goes to the underwriters who sell the bonds that underwrite the SBA 504 loans.
In addition to the upfront fees, there are ongoing fees that are charged to the borrower and paid as part of their monthly loan payments. 1/10% goes to the Servicing Agent, which collects, tracks and disburses funds for the program nationwide. 5/8% goes to the CDCs as an ongoing servicing fee to monitoring the loan and providing any necessary servicing requests (1/8% of this fee is in turn paid to the SBA into their loan loss reserve fund). The final 9375/1000% goes into the SBA loan loss reserve fund.
Because the loan funds for the SBA 504 loan program are raised by selling government backed securities, it allows small businesses to receive funding rates of 2.22%, and even with all of the ongoing fees, end up with an effective interest rate (inclusive of all ongoing fees) of 4.3% fixed for 20 years. The financing of the upfront fees raised the effective interest to 4.7% fixed for 20 years.
Rather than burdening the general tax payer to liabilities that the benefit only a few, the SBA 504 loan program chooses to have those who participate and benefit from the program pay their own way. And those who do participate benefit from securing a long term, fixed interest rate for their business loan, even with all of the fees.