What's the Difference Between Conventional and SBA Loans?

Business Guides

Jacques Famy Jr
Review By Todd Millman

Businesses looking for funding opportunities have a wide range of financing options. Whether you're looking for something conventional, from an online lender, or an SBA loan — you'll have to weigh the pros and cons of each to determine which is best suited for your business needs.

The primary difference between a "conventional loan" and an SBA loan is that the government guarantees an SBA loan. They are both viable options for businesses looking to find reliable funding.

The Small Business Administration (SBA) offers various financing opportunities to help springboard businesses or keep the ball rolling for future growth.

SBA vs. Conventional Loan:  Brief Look at Both Loan Types

We can see some differences when we take a quick glance at conventional loans vs. SBA loans. Let's explore how they work and how their rates and terms differ.

SBA Loan

  • Loan Amount: $5,000 - $5,000,000
  • Loan Term: 5-25 years
  • Interest Rates: 3.63% - 13%

Conventional Loan

  • Loan Amount: $25,000 - $250,000
  • Loan Terms: 1-5 years
  • Interest Rate: 7% - 30%

We can already see some stark differences by looking at these three factors, but there's much more to consider when identifying which option works best for your business needs.

SBA Loans 101

The Small Business Administration, or the SBA, is a government agency that gives entrepreneurs and small business owners resources and funding options.

Contrary to your opinion, the SBA does not lend money but is a guarantor of certain financing institutions and banks. They guarantee a certain percentage of a loan to help mitigate risk and offer incentives to banks to help out small business owners. This means longer payment terms, lower payments, and better interest rates than conventional loans.

The SBA implements a diverse range of loan programs.

  • SBA 7(a) Loan Program is the most popular funding option from the Small Business Administration. It can be used for various general business needs, making it a flexible and trendy option for small business owners.
  • SBA Microloan Program offers smaller amounts (up to $50,000), as the SBA acts as a nonprofit third-party intermediary lender.
  • CDC/504 Loan Program provides long-term financing for expansion or modernization at a fixed interest rate. This is a fantastic funding option for established businesses.

These are the three most popular SBA loan programs, but they are not the only ones. You can also look into

  • SBA Veterans Advantage
  • SBA CapLines
  • SBA Community Advantage
  • SBA Export Working Capital Program
  • SBA Paycheck Protection Program
  • SBA Economic Injury Disaster Loan (EIDL)

Some loans are better suited for large purchases like equipment or property, while others may be better for day-to-day operational needs or working capital. You may have to research to determine which works best for your business needs.

Some SBA programs heavily favor women-owned or minority-owned businesses, helping these entrepreneurs get the needed funding opportunities.

Regardless, SBA loans are a great way to obtain working capital, real estate, manufacturing equipment, or even acquire another business.


Due to the attractive terms, payment options, and interest rates — SBA loans are not easy to qualify. Those struggling with business credit scores, revenue, or time in business may have difficulty getting approved for SBA loans.

These programs require time and energy to apply for, as substantial paperwork and waiting periods exist to obtain funding. So, if you're looking for quick cash flow solutions, SBA loans may not be your avenue however, if you're worried about getting denied for an SBA program. So, take a look and follow the steps to get your business on track to receiving excellent financing opportunities.

As mentioned, significant paperwork is required to qualify for an SBA loan; this includes:

  • A valid driver's license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit and loss statements
  • Business tax returns
  • Personal tax returns
  • Business plan
  • Business debt schedule

SBA Rates: $5,000 - $5,000,000

Interest Rates: As low as 3.63% (depending on the loan product)

SBA Terms: Five years to 25 years

A Quick Glance at Conventional Loans

We've examined how SBA loans work, but what about conventional loans? Well, these traditionally come in the form of business term loans. When most entrepreneurs consider business loan options, term loans are usually top of mind. That's because the terms are straightforward.

  1. You borrow a fixed amount of money.
  2. You repay the loan over a fixed term.
  3. The payback is at a fixed interest rate.

Simple, right? Predictable monthly payments and fixed interest rates remove many of the complexities of financing, which is why this is an attractive option for many business owners. Additionally, you can use these funds for a wide range of business needs.

For businesses looking to add to their credit scores, conventional term loans are a great way to get the job done. Make your payments on time, and you'll help improve your credit score. This opens up other funding options with more attractive terms or interest rates.

Some popular forms of conventional term loans include:

  • Traditional bank term loans
  • Long-term business loans
  • Short-term business loans
  • Business acquisition term loans

One issue you may run into is prepayment penalties. Read the fine print and see if a clause contains a prepayment penalty, as making early payments can cost you. This is certainly a frustrating part of some conventional loan options — but it can be mitigated by digging before signing the fine print.


Some traditional loan options may be secured, meaning they'll require collateral. This may depend on your current credit and revenue situation, but it's worth asking about when considering conventional financing programs.

Applying for a conventional loan product can also be a fairly lengthy process, with substantial paperwork to submit. So, if you're looking for quick cash flow, you may need to look at alternative financing options. Here's what you'll need for your application:

  • Valid driver's license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit and loss statements
  • Credit score
  • Business tax returns
  • Personal tax returns

Conventional Loan Rates: $25,000 - $500,000

Interest Rates: Anywhere between 7% - 30%

Conventional Terms: Between one year and five years

A Quick Review of Conventional Loans vs. SBA Loans

So, there you have it, a breakdown of how traditional loan avenues differ from SBA loans. As we said, they each have their own pros and cons, so it's up to you to determine which is the right fit for your business's needs.

SBA loans shine with higher loan amounts, lower interest rates, longer repayment terms, and minimal collateral compared to conventional options. There are also many options, each with its own list of benefits that could be right for your company.

Where conventional loans take the cake is with an easier application process. For many business owners, SBA loan programs are grueling and require too much time and energy for what it's worth.

However, it's up to you to decide what's best for your business and how a certain financing opportunity can put you in a position to succeed over time.

Jacques Famy Jr

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