SBA Loans vs. Conventional Loans: What's the Difference?
When it comes to getting financing for your small business, one of the biggest choices you’ll have to make is whether to go with an SBA loan or a conventional loan. Conventional, non-SBA loans may provide larger loan amounts, and can sometimes have lower interest rates than their SBA counterparts. However, conventional loans can be much more difficult to qualify for than SBA loans, often requiring very high personal and business credit scores.
When Does It Make Sense to Apply for an SBA Loan?
SBA loans are often a great choice for businesses that:
Need a loan of anywhere between $500 (SBA microloans) and $5.5 million (SBA 504 loans)
Are somewhat established, but may not have many years of experience
Have very good, but not great credit (640+ typically is required for the SBA’s flagship 7(a) loan program)
Are in an industry that’s approved by the SBA, and are under the SBA’s size limits for businesses in their particular industry
Don’t have quite as much in the way of collateral to put up
Conventional Loans May Actually Be Better for Certain Businesses
While SBA loans do have some incredible benefits, they aren’t the right choice for every business. A conventional loan might be best for your company if:
You need a loan of more than $5.5 million
Your business has great credit (and you do, too)
Your business is not in an SBA approved industry (i.e. real estate investing, lending)
Your company is larger than the SBA’s size standards
You need to get approved for a large loan extremely quickly
In general, conventional bank loans permit larger loan amounts (up to $10 million or more in some cases), and can be approved somewhat faster than a comparable SBA loan. Of course, the SBA does have faster approval options, like the SBA express loan, but these loans can only offer borrowers up to $350,000 in financing. However, working with an SBA preferred lender for a 7(a) loan could significantly speed up the loan approval process.
It’s also good to keep in mind that conventional loans may have lower interest rates, though this can vary on case-by-case basis, so it’s always important do a careful comparison when looking at your small business loan options.