Head to head
SBA 7(a) loan vs Conventional business term loan
The same bank will often offer you either. The guarantee is what changes the shape of the loan: government backing buys a longer amortisation and lighter collateral, and costs a guarantee fee to get.
| SBA 7(a) loan | Conventional business term loan | |
|---|---|---|
| Typical amount | Up to $5 million | $25,000 to several million |
| Cost | Prime + 3% to prime + 6.5%, by loan size | Prime + 1% to prime + 8%, credit-dependent |
| Time to funding | 30-90 days | 2-8 weeks |
| Term | Up to 10 years, 25 with real estate | 1-10 years |
| Relative expense | $ | $$ |
Cost bands are editorial judgements expressed in APR-equivalent terms so products quoting factor rates and discount fees can be compared with products quoting interest. They indicate relative expense, not quotes. Methodology.
SBA 7(a) loan
Usually chosen when
- Collateral is thin relative to the amount needed
- A longer amortisation is the difference between affordable and not
- The business is younger, or the buyer is new to the industry
- The use of funds includes goodwill, which conventional lenders rarely finance
Conventional business term loan
Usually chosen when
- The business is established, profitable, and has real collateral
- There is an existing banking relationship to draw on
- Speed matters more than amortisation
- The guarantee fee is not worth paying for a borrower who would be approved anyway
Common questions
- Is an SBA loan harder to get than a conventional loan?
- Usually the opposite. The guarantee exists so lenders can say yes to borrowers they would otherwise decline. The trade is more paperwork and a longer timeline, not a higher bar.
Other comparisons
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