An SBA loan is a bank loan with a federal backstop
The SBA caps the rate a lender can charge and allows terms up to 10 or 25 years. The first thing to know is that an SBA loan is a business loan. A bank or other lender makes it, collects your payments and services it. The SBA backs part of it: up to 85% of loans of $150,000 or less and up to 75% of larger ones [1]. That backing is why the lender can say yes to a file it would otherwise turn down.
NerdWallet points out that some SBA lending partners are the same banks you might approach for a conventional loan [2]. So the real choice is often not which lender, but which program at that lender.
In return for its backing, the SBA sets rules a conventional loan does not have: a ceiling on the rate, limits on terms, required personal guarantees from 20% owners, and the requirement that you could not get the credit elsewhere on reasonable terms [1][6].
What $100,000 costs from each kind of lender
Monthly payment and total interest pull in opposite directions. A longer SBA term lowers the payment but stretches interest over more years. Here is $100,000 at the published ranges, with the term each lender typically offers.
| Loan and rate | Term | Monthly payment | Total interest |
|---|---|---|---|
| Bank at 6.37% [3] | 5 years | $1,950.53 | $17,031.88 |
| Bank at 10.98% [3] | 5 years | $2,173.25 | $30,394.70 |
| SBA 7(a) at the 13.0% cap [5] | 10 years | $1,493.11 | $79,172.89 |
| Online at 14% APR [3] | 3 years | $3,417.76 | $23,039.47 |
| Online at 99% APR [3] | 3 years | $8,754.46 | $215,160.47 |
Read the table two ways. If cash flow is tight, the SBA loan's $1,493 monthly payment is the easiest to carry. If you can afford a higher payment, a bank loan over 5 years costs far less in total. The online loan is the right answer only when speed is worth the difference.
Add fees. On a $100,000 SBA loan with an 85% guaranty, the maximum upfront guaranty fee is 2% of the $85,000 backed portion, or $1,700, and the lender may pass it to you [6].
Where the SBA bends: collateral and operating history
The clearest reason to choose an SBA loan over a conventional one is not price. It is what you are short on. NerdWallet describes the bank borrower as one with great credit, strong finances, multiple years in operation and plenty of collateral, and the SBA borrower as one with strong cash flow and good credit who falls short on collateral, operating history or equity [2].
| Loan size | SBA 7(a) collateral rule | Conventional bank loan |
|---|---|---|
| $50,000 or less | SBA does not require collateral [1] | Set by the bank's own policy |
| $50,001 to $500,000 | Lender's own policy, but no decline solely for weak collateral [1] | Set by the bank's own policy |
| Over $350,000 (standard 7(a)) | Fully secured where assets allow; other conditions apply [1] | Set by the bank's own policy |
So if a bank likes your cash flow but wants more collateral than you own, the SBA version of the same loan is built for you. If the bank's concern is your cash flow, the SBA will not fix that: SBA lenders must decline a loan the business cannot repay from cash flow, regardless of collateral [6].
Speed and paperwork: the real price of an SBA loan
NerdWallet puts SBA funding at 30 to 90 days, against several weeks for a bank loan [2] and as little as a day for some online term loans [4]. The extra time comes from the extra file: SBA forms, a personal history statement, a personal financial statement, and a written explanation from the lender of why you need SBA help.
That explanation is a real requirement. The lender must document the specific reasons you do not meet its conventional loan policy, and it may not use a missed credit score cutoff as the only reason [6]. If your cash flow and collateral would meet the lender's conventional standards, the project is not eligible for SBA backing [6].
When an online loan makes sense first
A contractor needs $40,000 for materials on a signed job that pays in 60 days. A 10-year SBA loan would take longer to close than the job lasts. A short online loan or a line of credit, repaid when the customer pays, can cost less in total dollars even at a higher APR, because the money is out for weeks, not years.
SBA loan vs line of credit: a lump sum or a revolving limit
Some searches for SBA loan vs business loan are really asking whether to take a lump sum or a line. An SBA term loan suits a defined purchase: real estate, equipment, buying a business or refinancing [1]. A line of credit suits costs that rise and fall, and you pay interest only on what you draw [7].
The SBA offers both. Revolving lines are allowed under SBA Express, Export Express and CAPLines [7], and SBA Express lines can run up to 10 years [7]. So if you want SBA pricing on a revolving limit, ask your lender about those programs specifically.
The order to apply in, and what to bring
- Ask your own bank for a conventional loan first. If it says yes on terms you can carry, that is usually your cheapest option.
- If it says no, ask the same bank whether the loan works under the SBA 7(a) program. Some banks are SBA lenders too [2].
- If your bank is not an SBA lender, use the SBA's Lender Match tool to find one [1].
- If you need the money before an SBA loan can close, price an online loan or line for the gap only, and plan to refinance or repay it quickly.
Bring the same core file to each: tax returns, current financial statements, a debt schedule and a short write-up of what the money is for. Business Funders does not lend; our quiz shows which of these your numbers fit and the cost of each in dollars.