How to SBA Loans Differ from Traditional Loan Options

When you start exploring your finance options for your small business, you may catch yourself choosing between a traditional loan and an SBA loan. SBA loans get their funding through the U.S Small Business Administration. These loans are available to startup companies and companies that have been around for a while. 

What Sets an SBA loan Apart From a Traditional Loan?

As you know, several factors go into choosing the right type of financing. Not every business qualifies for every kind of funding. That’s why there are plenty of options to go around. When it comes to the SBA loan, people who don’t normally qualify for traditional financing will benefit from it. Traditional loans may require the following, whereas an SBA loan won’t:

  • A larger cash flow
  • A long business history
  • Little to no borrowed money

If you fit in these criteria, you might prefer SBA loans.

How Does an SBA Loan Work?

An SBA loan does not come straight from the Small Business Administration. Instead, you apply through a bank or partner lender for a commercial loan. They structure these loans through the SBA requirements and have a backing by the SBA. This means that if you default on your loan, the SBA pays the bank a percentage. For banks and lenders, this loan is less of a risk. That’s why you’re more likely to get an SBA loan over a traditional one.

Before you make a decision though, it’s important to know some of the key differences between the two:

  • SBA loans require lower down payments, yet tend to have higher fees
  • Traditional loans will not access equity on a person’s home for collateral, an SBA loan might
  • An SBA loan has longer terms, this helps the payments stay low

As with any funding, there are advantages and disadvantages. It’s important to prioritize what is important to you.

How Do You Get an SBA Loan?

At first, the application process might seem a little overwhelming. The best course of action is to check out the SBA’s website to learn as much as you can about the loan options available. Try to determine whether you would be qualified before you go through the process. 

If you think that SBA loans would fit your business, then the application process is worth it. All businesses need some amount of financing and for many small businesses; the SBA loan is a perfect fit.

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