SBA Loan vs. Term Loan: Which Makes Sense for Your Business?

When you need a lump sum for your business, you are likely choosing between an SBA loan and a conventional term loan. Both give you a set amount upfront that you repay over time with interest. But the similarities largely end there.

The right choice depends on how much time you have, how strong your financials are, and how much you value lower rates versus faster access. Let us break down the real differences.

Side-by-Side Comparison

The Rate Difference Is Significant

This is where SBA loans really shine. Because the SBA guarantees 75-85% of the loan, lenders face less risk and can offer better rates. On a $250,000 loan over 10 years, the rate difference can save you $30,000-$80,000 in total interest.

Example: $250,000 at 8% SBA rate = ~$3,030/month. Same loan at 18% conventional rate = ~$4,500/month. That is $1,470/month or $176,400 over the life of the loan.

The Timeline Trade-Off

Here is the catch: SBA loans take time. The approval process involves your lender, potentially the SBA itself, and extensive documentation review. Conventional term loans, especially from online lenders, can fund in days.

If you need capital next week to cover payroll or seize an opportunity, an SBA loan is not the answer. If you can plan 2-3 months ahead, the SBA rate savings are usually worth the wait.

When to Choose an SBA Loan

SBA loans typically make the most sense when:

• You can wait 6-12 weeks for funding without harming your business
• You have strong credit (680+ FICO) and at least 2 years in business
• You need $100,000+ where rate savings compound significantly
• You want the longest possible term to minimize monthly payments
• You are buying real estate where 25-year terms are available
• You want fixed rates (available on some SBA programs like 504)
• You have clean financials that can withstand underwriting scrutiny

When to Choose a Conventional Term Loan

Conventional term loans make more sense when:

• You need money fast — within days or weeks, not months
• Your credit is fair (620-679) and SBA lenders would decline you
• You have been in business less than 2 years
• The loan amount is smaller ($25,000-$75,000) where SBA paperwork overhead is not worth it
• You have inconsistent documentation that would not survive SBA underwriting
• You value simplicity over rate optimization
• You plan to pay off quickly and want no prepayment penalty

Documentation Requirements

The paperwork burden is drastically different. SBA loans require extensive documentation that takes time to gather and submit.

The Bottom Line

If you have strong credit, 2+ years in business, time to wait, and need $100,000+, pursue an SBA loan first. The rate savings are substantial and the longer terms improve cash flow.

If you need speed, have imperfect credit, or are a younger business, conventional term loans provide access that SBA lenders would deny. You pay more in interest but you get capital when you need it.

Many business owners end up using both over time — starting with conventional financing to get established, then graduating to SBA loans as their business matures.