SBA rules · SOP 50 10 8.1

Can an SBA loan cover closing costs and fees?

Yes, both the 7(a) and 504 loan programs permit certain closing costs, professional fees, and loan fees to be financed with loan or debenture proceeds, subject to specific caps and restrictions, while certain lender fees and third-party costs are prohibited from being financed.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) allowable fees and closing costs: A borrower may use 7(a) loan proceeds to pay the SBA Upfront Fee if specified in the SBA Terms and Conditions and not disbursed primarily as the initial draw. Lenders may also collect necessary out-of-pocket closing expenses from the applicant (such as appraisal, environmental, filing, and hourly legal fees), and for change of ownership transactions, proceeds may finance borrower out-of-pocket costs including business valuations and Quality of Earnings reports.
7(a) prohibited fee financing: The Lender's Annual Service Fee cannot be charged to or paid by the borrower, and agent fees paid by the lender (including Lender Service Provider compensation) can never be passed on to the applicant or paid with loan proceeds, including working capital. In addition, loan proceeds may not finance formation or setup costs for ESOPs, cooperatives, or 401(k) plans.
504 debenture administrative costs: Under the 504 program, eligible administrative costs (the SBA guaranty fee, funding fee, CDC processing fee, underwriter's fee, and closing costs up to a $10,000 cap for CDC closing and legal expenses) are added to the Net Debenture and financed through the Gross Debenture proceeds. The CDC processing fee and closing costs are the only fees that the borrower may optionally pay upfront and exclude from the debenture.
504 professional fees and project financing costs: Professional fees directly attributable and essential to the project (such as title searches, title insurance, surveys, and zoning matters) may be included in 504 project costs, with the exception of attorney's fees incurred in closing the Interim and Third Party Loans. Proceeds may also finance the repayment of interim financing points, fees, and interest, as well as necessary refinancing costs such as prepayment penalties and financing fees on eligible existing debt.

The source

What the SOP says

“The Borrower may use loan proceeds to pay the Upfront Fee; however, the first disbursement may not be made primarily for the purpose of paying the Upfront Fee. If the Borrower plans to use loan proceeds to pay the Upfront Fee, the SBA Terms and Conditions must include a Use of Proceeds category for this purpose.

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > 7(a) Loan Program Fees (lines 900-907)✓ Verified

“This fee cannot be charged to the Borrower.

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > Full refund (lines 958-964)✓ Verified

“The Agent must bill and be paid by the 7(a) Lender for all services and the 7(a) Lender may not pass these charges through to the Applicant or pay them with SBA-guaranteed loan proceeds under any circumstances, including with loan proceeds allocated to working capital.

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > Use of Agents in the 7(a) Loan Program (lines 1026-1030)✓ Verified

“The Lender may collect from the Applicant necessary out-of-pocket expenses such as filing or recording fees, photocopying, delivery charges, collateral appraisals and environmental investigation reports that are obtained in compliance with SBA policy, and other direct charges related to loan closing.

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > Out-of-Pocket Expenses. 13 CFR § 120.221(c) (lines 988-993)✓ Verified

“Change of ownership transactions may include funds for: Working Capital; Borrower out of pocket expenses (including business valuations and QoE); and Owner-Occupied Commercial Real Estate when structured on a blended basis.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Change of ownership transactions may include funds for: (lines 5115-5118)✓ Verified

“Maximum of $10,000 may be financed from the debenture proceeds.

SOP 50 10 8.1, Chapter 4: Ethics, Fees, and Agents > Up to 1.5% of the Net Debenture (lines 1153-1160)✓ Verified

“The administrative costs set out in 13 CFR § 120.883 are not part of the Project costs but are added to the Net Debenture to calculate the Gross Debenture amount.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Eligible Administrative Costs (lines 3336-3341)✓ Verified

“The CDC’s Processing Fee and the closing costs are the only fees that can be paid upfront and deleted from the Gross Debenture calculations.

SOP 50 10 8.1, Chapter 3: Debenture Pricing and Funding > Separate Payment of the Debenture Fees (lines 4045-4049)✓ Verified

“If directly attributable and essential to the Project with the exception of attorney’s fees incurred in closing the Interim and Third Party Loans. Examples of project-related costs that may be included in this section are title insurance; title searches and abstract costs; surveys; and zoning matters;

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Professional Fees (lines 3176-3177)✓ Verified

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