When it comes to business financing, SBA loans and traditional bank loans are two of the most common options. They both come from banks, they both require paperwork, and they both help businesses secure capital. But the similarities mostly stop there.
Whether you’re launching, expanding, or refinancing, knowing how these two options differ can save you time, money, and frustration.
Who Carries the Risk?
SBA Loans
The U.S. Small Business Administration guarantees part of the loan, which means the lender takes on less risk. This guarantee encourages banks to approve businesses they might otherwise turn down.Traditional Bank Loans
The bank assumes all the risk. Because of that, they tend to approve only borrowers with strong financials, collateral, and a long operating history.
How Hard Is It to Qualify?
SBA Loans
Designed specifically for small businesses. Requirements are still there, but they’re more flexible. If you’re profitable, have decent credit, and a clear use of funds, you’re in the ballpark.Traditional Bank Loans
Expect stricter standards. Banks typically want a well-established business, a high credit score, and a strong balance sheet. If you’re missing any of those, it can be a tough sell.
Interest Rates and Fees
SBA Loans
Rates are competitive and set within SBA guidelines. While not the lowest available, they are often better than what small businesses can get through other channels.Traditional Bank Loans
May offer lower rates, but only to the most qualified borrowers. Many small businesses won’t meet the bar.
Time to Funding
SBA Loans
The process can be slow. Between the paperwork and SBA review, expect anywhere from four to eight weeks.Traditional Bank Loans
Slightly faster if you qualify. But with underwriting and documentation, you’re still looking at several weeks.
Collateral and Guarantees
SBA Loans
Collateral is preferred but not always required. If your business shows strong performance, a shortfall in assets isn’t necessarily a deal-breaker.Traditional Bank Loans
Collateral is usually a must. Without it, most banks won’t move forward.
Flexibility in Use of Funds
SBA Loans
Can be used for working capital, equipment, real estate, business acquisitions, or even refinancing debt.Traditional Bank Loans
Also flexible, but some lenders limit use cases depending on the loan type.
Choosing the Right Fit
If you run a well-established business with strong credit and significant assets, a traditional bank loan might offer the best pricing and quickest approval.
But if your business is newer, has less collateral, or you’re looking for more accommodating terms, an SBA loan could be a better option.
At BorrowPartner, we help businesses evaluate all available financing paths. Whether you’re comparing SBA lenders or considering other funding types, we’re here to help you make the right call.
Questions? Reach out anytime to talk through your options.
