When it comes to obtaining funding for your small business, one of the most important decisions you'll have to make is to opt for an SBA loan or a conventional loan. Both types of loans are usually issued by banks, but they come with different interest rates, fees, and repayment terms. The Small Business Administration (SBA) provides SBA 504 loans, which can be used to purchase owner-occupied buildings and core teams. These loans usually have a longer repayment term and a lower interest rate than conventional loans.
An SBA 504 loan doesn't require additional collateral, but that may not be the case for a traditional bank loan. If you're a fairly established company with excellent credit and don't want to wait long to get funding, a conventional loan may be a good option. This greater flexibility is often accompanied by a higher level of personalized customer service from lending experts who work closely with borrowing clients to obtain financing. You can check both for free with Nav or use Business Loan Builder to control your business credit and have your business credit profile ready to apply for.
Have very good credit, but not very good (generally, more than 640 are required for the SBA's flagship 7 (a) loan program). If you work with an SBA loan provider with the fastest delivery times, such as SmartBiz, you still have 30 days or more left until the money is in your account. SBA loans are a critical lifesaver for small businesses that don't qualify to receive funds from traditional lenders. With a 504 loan from the SBA, the total cost of the project, which includes the contribution of the banking partner, the CDC and the owner, is limitless.
Some banks that are preferred SBA lenders will also have their own small business loans, where they originate “conventional” bank loans for low-risk companies. However, SBA loans take a long time to fund due to the extensive paperwork and lengthy application process. You must have a score of at least 140 (out of the 300 highest possible) to pass the SBA pre-selection, but you'll want to see a score of at least 160 to be sure. Some conventional bank loans have a lump sum payment stipulation, which means that you must make a substantial payment when the loan matures. When lending money that they have secured themselves, banks always require the borrower to provide security and, generally, the value of the collateral must be equal to the full amount of the loan. In conclusion, there are several key differences between an SBA loan and a conventional business loan.
An SBA loan usually has a longer repayment term and a lower interest rate than a conventional loan. If you're looking for faster funding with greater flexibility and personalized customer service from lending experts, then a conventional loan may be your best option.
