SBA Loan Up-Front Packaging Fee

June 04, 2024

by a searcher in Seven Valleys, PA, USA

It is my first time working through the SBA loan process. I have a term sheet from a lender, but am mildly concerned that they are asking for an up-front packaging fee that is (in part) refundable if the loan is not approved. There is already a significant amount of equity in the broker's escrow account. The language of the term sheet is below -- seems odd to me that a lender is asking for a borrower to essentially cover their costs up front.

Anyone have thoughts?

"to process your loan request, you agree to pay us a packaging fee of $2,500. This fee shall be refunded, less any out of pocket expenses incurred by us if we are unable to approve the loan on the terms outlined. If we approve your loan request as outlined, the fee will be non-refundable."

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Most SBA lenders will ask for a deposit from their clients as part of the term sheet that way they know the client is sincere in moving forward with them. It takes a lot of effort to underwrite an SBA 7A loan, so lenders want to be confident the client is serious. That deposit is typically refundable if the deal does not move forward or the deal falls apart for any reason. Sometimes some of the money can be spent during the process if you pre-order any third party reports, but you should be approving that in advance of that money spent.

Because making this type of deposit is not uncommon, I would not worry about having to do so as long as you can confirm it really is a refundable deposit. You do not want to put money down that would be lost should the deal not be approved or that is earned for approving the deal even if it does not close for a reason outside of your control. I hope this helps to clarify. Please let me know if you have any additional questions.

Reply by a lender
from California State University, Sacramento in Auburn, CA, USA

As a 35-year seasoned SBA lender, when I issue a prequalification letter / financing proposal to a borrower, my Bank requires a good-faith deposit for our Packaging/Processing Fee ($1,500) plus all expected third-party fees (business valuation, personal real estate appraisal(s), etc.). In order for a file to get submitted to Underwriting for formal approval, purposes, I generally have to invest six to 10 hours into my Credit Presentation and file preparation. Without a borrower's commitment (i.e. good-faith deposit $), I don't want to invest that time. The good-faith deposit is a borrower's commitment that they are done shopping lenders, are committed to working together, and aren't simply wasting a lender's time (while still kicking tires).

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