When conventional beats SBA
Speed and cost, for strong borrowers. A profitable business with three years of clean financials and real collateral can often get a conventional term loan faster and cheaper than an SBA loan, without the guarantee fee.
The trade is amortisation. Conventional business term loans rarely run past seven years outside real estate; SBA money routinely does. For a borrower whose constraint is monthly payment rather than headline rate, the longer SBA amortisation often wins even at a higher rate.
What banks underwrite on
Debt service coverage ratio above roughly 1.25×, positive trailing cash flow, a personal guarantee, and collateral. Relationship matters more here than anywhere else in the market - an existing depositor with a decade of history is a materially different applicant than a walk-in.
Commonly used for
- Established, profitable businesses with collateral
- Borrowers who already bank with the lender
- Situations where the SBA guarantee fee is not worth paying
What to check before signing
- Shorter amortisation raises the monthly payment even at a lower rate
- Financial covenants are common and can be triggered by a bad quarter
- Personal guarantees and blanket liens are standard
Term loan: common questions
- Is a conventional loan cheaper than an SBA loan?
- Often yes on rate and fees for a strong borrower, because there is no SBA guarantee fee. But the shorter term usually means a higher monthly payment, so the cheaper loan on paper can be the harder loan to service.