SBA Loans Vs Conventional Loans: What’s the Difference?

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SBA Loans Vs Conventional Loans - What are the main differences?

Trying to compare SBA vs conventional loans? What are the differences? Which one is better? If you want to learn more about SBA vs conventional loans, we can help you. Throughout this blog, you will discover the main differences, advantages, loan amounts, loan terms, how to apply, requirements, and more. Although SBA loans have many advantages, if you are looking for fast cash it may not be your best option. SBA loans usually have lower rates, longer repayment terms, and higher loan amounts but they can take months to fund. Despite the lengthy approval process, SBA loans can be one of the best and low-cost options for small businesses that need to borrow money.

In most cases, SBA loans and conventional loans are both issued by banks and online lenders but SBA loans are partially guaranteed by the government. While conventional loans are not backed by the government, they do follow some government agency guidelines. Both loans offer a low-cost option with flexible repayment terms. However, since SBA loans are partially backed by the government they usually have lower interest rates, longer repayment terms, and higher loan amounts. SBA loans often require a lengthy and more complicated application process but can be worth the extra work to get approved. Conventional loans can include secured loans and unsecured loans. Secured loans usually require collateral while unsecured loans do not. In most cases, unsecured loans are primarily based on the creditworthiness and financial condition of the buyer. Usually secured loans have lower interest rates compared to unsecured loans. 

SBA vs. Conventional Loans - Advantages 

SBA loans can outshine conventional loans in terms of their advantages. The only real advantage of using a conventional loan is that it’s easier and faster to secure. Let’s take a look at the advantages of using an SBA loan compared to a conventional loan.

Advantages of using an SBA loan vs. conventional loan:

  1. Lower interest rates - Compared to conventional loans, SBA loans usually have lower interest rates since they are backed by the government.  SBA loan rates can vary depending on the type of SBA loan you use, how much you borrow, and the repayment terms you select.
  2. Longer repayment terms - SBA loans can offer repayment terms up to 5x longer than conventional loans. Conventional loans usually only offer terms up to five years while SBA loans can offer terms up to twenty-five years.
  3. Little to no collateral - In most cases, you can secure SBA loans under $350,000 without providing collateral while still taking advantage of lower interest rates. Conventional loans that do not require collateral usually have higher interest rates. Anytime you take a loan without collateral you can minimize the risk of your personal assets.
  4. Higher loan amounts - While conventional loans and SBA loans can be your best options for borrowing money, SBA loans have much higher loan amounts. Using an SBA loan you can borrow up to $5,000,000 on approved loans.
  5. Flexibility  - SBA loans can offer more spending flexibility compared to conventional loans. Borrowers can use SBA loans for just about any business operating expense besides paying off taxes.

Conventional Loan Rates Vs SBA Loan Rates

As we discussed above, SBA loans can have a more complicated and time-consuming application process. When you start to dive into comparing SBA loans vs conventional loans you may realize that SBA loans are worth trying to get approved for. SBA loans usually offer interest rates starting at only 4.39% compared to conventional loans which usually offer interest rates starting at 7%. In most cases, SBA loans offer rates up to about 13% while conventional loans offer rates up to about 30%.

Conventional Loan Terms Vs SBA Loan Terms

SBA loans typically have much longer terms compared to conventional loans. Most SBA loans offer terms between 5-25 years while most conventional loans offer terms between 1-5 years. In addition, SBA loans can allow you to borrow up to $5,000,000 while most conventional loans have a max loan amount of $250,000.

How to Apply For A Conventional Loan Vs an SBA Loan

SBA loans and conventional loans can be secured through most traditional banks. However, using online lenders may be more efficient and allow you to compare rates and terms easier and ultimately get the best deal. PrimeRates is a trustworthy and secure online platform that can help you get pre-qualified and compare loan offers. PrimeRates partners with many reliable lenders forcing them to make more competitive offers. To get started, visit PrimeRates and submit an online application that does not affect your credit score. 

Loan Amount: $30,000 - $350,000
APR Range: 9.7% - 11.04%
Time To Fund: Typically take several weeks to fund, but can fund as quickly as within seven days.
Loan Term: Maximum loan term is 10 years.
Origination Fee: 4.00%
How To Qualify: 675+ Personal credit score
$50,000+ Annual revenue
Great Option For: Borrowers with good credit
SBA loans
Funding real estate purchases
Refinancing debt
Credit Check? Soft credit check and hard pull
Co-Applicants Accepted? No cosigners
Direct Pay-Off To Creditors? No
Click “Check Rates” to apply to SmartBiz

» MORE: SmartBiz SBA Loan Review

SBA Loan Vs Conventional Loan Qualifications/Requirements

Qualifying for a conventional loan can be much simpler than qualifying for an SBA loan. Most conventional loans are based on creditworthiness and financial standing. This means that the better your credit score, the more likely you are to get approved. In addition, borrowers with high credit scores can secure lower interest rates with less money down or collateral. Qualifying for an SBA loan can be more complex. If you are thinking about applying for an SBA loan, you should start by ensuring that you meet the minimum requirements, listed below. If you do, then you should apply. Keep in mind, the approval process can take about 90 days. The type of SBA loan you apply for can vary the specific requirements. 

Compare SBA Loans

Some of the general basic requirements for qualifying for an SBA loan include:

  • Must be a registered for-profit business
  • Business must be operated and located in the U.S. 
  • No delinquent or default past government debts
  • Other financing options are not available and have been exhausted
  • Time and money have been invested into the business by the business owner
  • Businesses must meet the SBA’s definition of a small business

If you are looking to secure an SBA 7(a) loan the requirements can include:

  • Good to excellent personal credit score
  • Solid business revenues and profits
  • Business plan
  • Collateral 
  • Must be a for-profit business
  • Must meet SBA small business size standards (industry-based)
  • Business must be located and operated in the U.S.
  • Sufficient time in business

If you are looking to secure an SBA 504 loan the requirements can include:

  • Must meet SBA small business size standards (industry-based)
  • Net worth should not exceed $15 million
  • Average net income below $5 million or less after federal income taxes for a minimum of two years prior to application
  • Fulfill owner-occupancy requirements
  • Public policy goals must be supported or jobs must be created or retained by the project
  • For-profit businesses only (no operating in a passive industry)
  • 10%-20% down payment

If you are looking to secure an SBA Microloan the requirements can include:

  • Must be a for-profit business
  • Must meet SBA small business size standards (industry-based)
  • Average credit
  • Ability to repay the loan
  • Business plan
  • Collateral
  • Personal Guarantee
  • Demonstrate good character


In conclusion, SBA loans are very different from conventional loans. While they are both great ways to borrow money, SBA loans can provide more capital, lower interest rates, and longer repayment terms. In order to apply for an SBA loan, you should meet the basic requirements. 

Compare SBA Loans

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