There are many things to consider when comparing a loan backed by the Small Business Administration (SBA) and a conventional business loan, also known as a business term loan. When comparing an SBA loan vs conventional business loans, SBA loans offer lower down payments and longer repayment terms with flexible lending criteria. The most common type of SBA loan is the SBA 7(a) loan.
What SBA 7(A) Loans Have To Offer
With SBA 7(a) loans, businesses can borrow up to $5 million with 10 year terms at either fixed or variable interest rates that are below conventional business loans. These loans can be used to provide working capital, to refinance your business debts, or to buy a business, commercial real estate, equipment, and inventories.
Terms could be extended to 11 years when buying something that has a useful life of 10 years or more. Any portion of an SBA 7(a) loan that’s used to buy or improve a business property could have a term of up to 25 years. Borrowers must provide collateral, which is typically the asset that’s purchased with proceeds from the loan.
What Business Term Loans Have To Offer
A business term loan can be used for debt consolidation or refinancing, as a source of working capital, or to buy a business, equipment, inventories, and commercial real estate. They typically offer a faster approval process than SBA loans, with all lending decisions made locally.
Key Differences between Conventional Loans and SBA 7(A) Loans
When it comes to conventional loans vs SBA 7(a) loans, a conventional loan may offer higher borrowing limits based on your business income and credit worthiness.
Other key differences between conventional loans and SBA 7(a) loans include:
- SBA 7(a) loans offer lower interest rates and longer repayment terms so it would take your business longer to pay off the loan, but you would have lower monthly payments.
- Conventional loans require less paperwork and typically have faster approvals than SBA 7(a) loans.
- SBA 7(a) loans have looser eligibility requirements and are intended for businesses that might not qualify for a conventional business loan.
- Conventional loans usually require more business and personal collateral than SBA 7(a) loans.
- SBA 7(a) loans offer terms ranging from 10 to 25 years, while conventional loans typically have terms of 5 to 10 years.
- SBA 7(a) loans have a maximum borrowing limit of $5 million. Conventional loans could have higher borrowing limits, based on your credit and collateral.
How to Choose between an SBA 7(A) loan vs a Conventional Loan
When comparing the pros and cons of conventional loans and SBA (7) loans, the decision could depend on the financial needs of your business, but also your eligibility. If you’re trying to decide between the two, you might start by figuring out how much you need to borrow and how much business and personal collateral you have.
Of course, if you’re using a business loan to buy something tangible such as equipment or commercial real estate, they would serve as collateral to secure the loan. You’ll also need to consider how long you want to pay off the loan and what your monthly payments would be. If you need to preserve your working capital and have your monthly loan payments as low as possible, or if your business is a startup and you find it difficult to obtain a conventional loan, then an SBA (7) loan might work for you.
If your business is established, has good credit, you need a higher loan amount with more flexibility in how you use the proceeds, and you can afford higher monthly payments, then a conventional business loan might be what you need.
Contact a Cogent Bank Business Lender Today
If you need a business loan and are trying to choose between an SBA 7(a) loan and a conventional loan, we can help you compare your options for Florida small business loans. Please call us at 888-577-0404 or visit our locations throughout the state of Florida. As an SBA approved lender, we can help you find a small business loan that best fits your needs.
Disclaimer: The information contained herein is for informational/educational purposes only. The views and opinions expressed in this document may be those of the individuals and may not necessarily reflect those of Cogent Bancorp and its subsidiaries and affiliates, or the entities they may represent. Content contained herein may be used in connection with the advertising and/or marketing of products offered by Cogent Bank or Cogent Private Wealth. The material is not intended to provide or substitute for legal, tax, or financial advice or to indicate the availability or suitability of any Cogent Bank product or service. You should consult with a legal, financial, tax, or other appropriate professional(s) for your specific needs and/or objectives before making any decisions.
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