A loan guarantee fee is a fee charged to lenders for services like bundling, selling, and reporting mortgage-backed securities (MBS) to applicable investors. The fee is charged to protect against losses due to credit-related issues in the mortgage portfolio. Small portions of the guarantee fee are also used to cover internal expenses in relation to the mortgage portfolio.

Guarantee fees simultaneously allow corporations that are selling the MBS to profit from sales while also benefiting the lender by reducing risk, and benefiting the borrower by allowing a more flexible credit requirement.

The benefits of a loan guarantee fee are that it allows corporations that are selling the mortgage-backed securities (MBS) to profit from sales while also benefiting the lender by reducing risk, and benefiting the borrower by allowing a more flexible credit requirement.

The guaranty fee also shifts the burden of administrative costs onto the borrower and away from the taxpayer. Entrepreneurs can use the proceeds of their SBA loans to pay the guaranty fee, and don't need to come up with these additional funds out of pocket.

The risk associated with a loan guarantee fee is that the lender may incur losses due to credit-related issues in the mortgage portfolio. The fee is charged to protect against these losses. Additionally, the SBA guarantee fee can be based on either the dollar amount of the guaranteed portion of the SBA loan, or the repayment term of the SBA loan. The SBA guarantee can be 75% to 85% of your loan and the guarantee fee owed by the borrower can range from 0% to 3.75% of the SBA guaranteed loan amount.

For example, for a $150,000 loan, the SBA guaranty fee is $2,550 or 2% of the guaranteed portion (85%). For a $5,000,000 loan (75% SBA guaranty of $3,750,000), the loan fee is $138,125 calculated as 3.5% of the first $1 million guaranteed ($35,000) plus 3.75% of the remaining guaranteed amount.

The length of repayment terms can vary and be as high as 10 years for working capital loans or 25 years for commercial real estate loans.

A loan guarantee fee affects the loan terms by reducing the risk for the lender and allowing for a more flexible credit requirement for the borrower. The fee is typically passed on to the borrower by the lender and can be included in the borrower’s overall loan proceeds. The fee can be based on either the dollar amount of the guaranteed portion of the loan, or the repayment term of the loan. For example, for a $150,000 loan, the SBA guaranty fee is $2,550 or 2% of the guaranteed portion (85%). For a $5,000,000 loan (75% SBA guaranty of $3,750,000), the loan fee is $138,125 calculated as 3.5% of the first $1 million guaranteed ($35,000) plus 3.75% of the remaining guaranteed amount. Any loan with a term of 1 year or less will have a 0.25% guarantee fee, while all other terms begin at 3% and differ based on the amount of the guaranteed portion of the loan. Source and Source

Loan guarantee fees are fees charged to lenders for services like bundling, selling, and reporting mortgage-backed securities (MBS) to applicable investors. The fee is charged to protect against losses due to credit-related issues in the mortgage portfolio. The SBA guarantee fee can be based on either the dollar amount of the guaranteed portion of the SBA loan, or the repayment term of the SBA loan. The SBA guarantee can be 75% to 85% of your loan and the guarantee fee owed by the borrower can range from 0% to 3.75% of the SBA guaranteed loan amount. If the SBA guarantee fee is based on the repayment term of the SBA guaranteed loan, any loan with a term of 1 year or less will have a 0.25% guarantee fee, while all other terms begin at 3% and differ based on the amount of the guaranteed portion of the loan.

When shopping for a commercial real estate loan, it is important to ask about any fees and other associated costs. Loan guarantee fees are fees charged to lenders for services like bundling, selling, and reporting mortgage-backed securities (MBS) to applicable investors. The fee is charged to protect against losses due to credit-related issues in the mortgage portfolio. It is important to understand the terms of the loan guarantee fee and how it will affect your loan. You should also consider the cost of the loan guarantee fee and how it compares to other loan products. Additionally, you should consider the risk associated with the loan guarantee fee and how it will affect your loan. Ultimately, it is important to weigh the cost and risk of the loan guarantee fee against the benefits it provides to determine if it is the right fit for your commercial real estate loan.