You will need cash flow at some point when you are a small business owner. Two options that you can choose from is conventional business loans and Small Business Administration loans. So, how do you know which type of business loan is best for your business’s financial situation? To help you decide, we’ll review the differences between conventional loans and SBA loans.
Conventional loans are loans you get from banks, credit unions, and online lenders. These loans vary significantly and come with different interest rates, fees, and repayment terms.
In most cases, you’ll need to provide documents such as business bank statements and a business plan to get approved. Depending on the business financing lender, you may also need a strong credit score to qualify.
There is no shortage of conventional business financing available. Just about every lender offers some type of loan for businesses. Therefore, it’s essential to do your research and compare each lender’s rates, terms, and fees.
SBA loans promise that the SBA will buy back part of your loan from the lender if you default on it. The SBA guarantees from 50% to 90% of the loan amount, up to $5 million. An SBA loan will make sense for you if you can’t qualify for a conventional loan.
An SBA financing option includes the 7(a) loan which can help you cover expenses such as:
Conventional and SBA loans can help you pay for a variety of business-related expenses. This is because they’re based on the lender’s underwriting criteria rather than the rigorous requirements of a government agency.
To apply for conventional business financing, find a bank, credit union, or online lender that offers it. The application can be filled out in person, over the phone, or online. It may take time to review the loan and approval time can take weeks or months.
To apply for an SBA loan, visit the SBA website and complete the short SBA Lender Match form. It will ask you a few questions about your business and particular needs. Within a few days, you’ll receive an email with a list of SBA approved lenders you’ve been matched with. You may contact these lenders individually to compare rates and terms before you sign on the dotted line.
As you can see, they both have their pros and cons. Weigh them each carefully before deciding to pursue one.