SBA Loans vs. Conventional Loans

Having access to the capital your business needs is important for financial growth. Whether you’re just getting started or have years in business, loans are an important tool for purchasing the things you need to take great care of your customers. When it’s time to apply for financing, there are many options available from lenders, from Small Business Administration loans to conventional term loans. What are the differences between SBA loans and traditional loans?

What Are SBA Loans?

What makes an SBA loan special is the fact that it’s backed in part by the government. This reduces the risk lenders face when extending your financing, making it easier for your business to qualify. Depending on the type of SBA loan you apply for, the government may assume the risk for anywhere from 25% to 90% of the loan’s value. To get this type of financing, you need to find a financial institution with experience working with SBA-backed loans.

What Are the Pros and Cons of an SBA Loan?

There are many advantages to using an SBA loan to generate business growth. These come with a few important strings attached, as well.

  • Easy approval: Since the government backs a large part of the loan, qualifying for an SBA loan can be easier than with conventional loans. In traditional loans, the bank may request you to use collateral as equity for the loan, but the SBA doesn’t do that.
  • Business-friendly payment options: The SBA is interested in keeping your business healthy. It doesn’t want you to have to close down. That means that if you’re having trouble making payments on the loan because of unexpected emergencies, the SBA can help to make adjustments to your payment schedule, perhaps allowing for lower interest-only payments for a while, or offering a deferred-payment option.
  • Excellent terms and rates: Loans backed by the SBA are very competitive when it comes to interest rates and terms. They’re usually even lower than traditional loans, and term options can extend for longer. All of this is designed to give your business financing while making monthly payments as comfortable as possible.

With all of these pros, where are the cons? SBA-backed loans have two important drawbacks: time and complexity. It can take anywhere from 30 days to six months to receive loan approval, and you need to find a lender with experience in SBA financing. In addition, there is a lot of government paperwork to fill out, so you need to know your business financials well. That said, SBA loans are an amazing tool, and many owners find the effort more than worth the time investment.

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