SBA Loan Vs. Conventional Loan: What’s The Difference?

SBA Loan Vs. Conventional Loan: What’s The Difference?

SBA Loan Vs. Conventional Loan: What's The Difference?

When it comes to financing options for small businesses, two common choices are SBA loans and conventional loans. Understanding the differences between these two types of loans is crucial for business owners seeking the most suitable funding solution. Here are the key differences between an SBA loan vs. conventional loan:

Loan Source

  • SBA Loans: SBA loans are backed by the U.S. Small Business Administration, a government agency that supports small businesses by providing loan guarantees to approved lenders.
  • Conventional Loans: Conventional loans, on the other hand, are not backed by any government agency and are typically offered by banks, credit unions, and other financial institutions.

Loan Purpose

  • SBA Loans: SBA loans are designed to support small businesses in various capacities, including working capital, equipment purchase, real estate acquisition, debt refinancing, and business expansion.
  • Conventional Loans: Conventional loans can also be used for similar purposes, but they are not specifically tailored to small businesses. They are more broadly available for commercial lending needs.

Risk Mitigation

  • SBA Loans: The SBA’s loan guarantee provides a level of risk mitigation for lenders, making them more willing to provide loans to small businesses that may not meet traditional lending criteria. This encourages lenders to support businesses that have the potential for growth and economic impact.
  • Conventional Loans: Conventional loans carry higher risks for lenders since they are not backed by any government guarantee. As a result, lenders may be more cautious in lending to businesses that do not meet their strict eligibility requirements.

Loan Terms and Interest Rates

  • SBA Loans: SBA loans generally offer longer repayment terms, ranging from 5 to 25 years, depending on the purpose of the loan. The interest rates for SBA loans are typically lower than those of conventional loans, as they are partially guaranteed by the SBA.
  • Conventional Loans: Conventional loans tend to have shorter repayment terms, usually between 3 to 10 years. Interest rates for conventional loans may vary depending on the lender’s assessment of the borrower’s creditworthiness and market conditions.

Collateral Requirements

  • SBA Loans: SBA loans often require collateral, but the specific collateral requirements can vary based on factors such as the loan amount, purpose, and lender’s policies. The SBA provides guidelines to lenders but allows flexibility in determining collateral requirements.
  • Conventional Loans: Conventional loans typically require significant collateral to secure the loan. Lenders often seek collateral that matches or exceeds the loan amount to mitigate their risk.

Funding Timeline

  • SBA Loans: The approval and funding process for SBA loans can be longer compared to conventional loans. The SBA loan application requires thorough review and approval from both the lender and the SBA, which can result in a more extended timeline for loan disbursement.
  • Conventional Loans: Conventional loans typically have a faster funding timeline. Once the loan application is approved by the lender, the funds can be disbursed relatively quickly, allowing businesses to access the capital they need in a timely manner.

Application Process

  • SBA Loans: The application process for SBA loans can be more complex and time-consuming compared to conventional loans. It involves extensive documentation, including business plans, financial statements, tax returns, and personal financial information of the business owners.
  • Conventional Loans: Conventional loan applications are generally more streamlined and less bureaucratic. The required documentation may vary by lender but is typically focused on the business’s financials and credit history.

Loan Size

  • SBA Loans: SBA loans can accommodate both small and large loan sizes. The maximum loan amounts vary depending on the SBA program, ranging from $50,000 to several million dollars.
  • Conventional Loans: Conventional loans are more commonly associated with larger loan sizes. They are often suitable for businesses that require significant capital investments or have substantial financing needs beyond the limits of SBA loan programs.

In summary, SBA loans and conventional loans differ in various aspects, including their source, eligibility requirements, terms, interest rates, collateral requirements, and application processes. SBA loans offer more flexible eligibility criteria, longer repayment terms, lower interest rates, and the advantage of a government guarantee. Conventional loans, on the other hand, may have stricter requirements, shorter repayment terms, higher interest rates, and require substantial collateral.

Understanding these differences is crucial for business owners seeking financing options. Assessing your business’s specific needs, financial situation, and eligibility criteria will help you determine whether an SBA loan or a conventional loan is the right choice to support your business’s growth and success.


Mark J. Kane is a successful entrepreneur spending the last 16 years lending money to business owners. Beginning his career as a psychologist, at the age of 23 he became the youngest Hospital Admin running a 100+ bed facility. He built two businesses to over 500 employees and a business from scratch to over $18M in revenue in 18 months before selling. This experience led him to begin Sunwise Capital.

Category: Advice, Getting Money

Take Your Business Further With A Loan From Sunwise Capital