SBA Loans Versus Traditional Loans

Business buyers often ask our business brokers in CT, VT, NY, MI, PA or MA for advice on which kinds of loans are best. This article compares some pros and cons of SBA loans versus traditional loans from a bank. If you are in the market to buy a business, please feel free to reach out to an Inbar Group business broker in New York City, New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, Maine and/or Massachusetts.

The truth is that if you’re buying a business, you might want to consider SBA loans in a few different circumstances. These loans are a good option for small businesses that may not otherwise qualify for a loan from a bank. On the plus side, SBA loans also offer low interest rates and fixed terms just like conventional bank loans. But it’s important to know about the differences and how they can impact you.

Information about SBA Loans

With the SBA, your loan will be backed by approved lenders. It is guaranteed to 85 percent of the value of the loan. Currently, the interest rates currently range between 2.25 and 4.25 percent. More details can be found here.

Keep in mind that there are a few kinds of SBA loans. The 7a loan is the main kind of loan that they offer and it goes up to 5 million. The terms of this kind of loan will vary on your credit score. Of course, it’s important to point out that this is also the case with conventional loans. If you are getting ready to look into loans and have questions about how to proceed, our business brokers in CT, VT, NY, MI, PA or MA can help you with recommendations.

How are Traditional Loans Different?

In contrast, conventional bank loans are not backed by the government. That means that the bank takes all the risk. As a result, the conventional banks will want you to have a strong track record and financials. If you are qualified, however, a traditional loan will generally involve less paperwork and go through quicker.

SBA loans are notorious for requiring a lot of paperwork. They can be overly complicated since the borrower is considered to be more of a risk.  If you go this route, you will want to partner with a banker with experience with SBA loans to help you navigate the process. You should also expect to deal with a lot of regulations since you’re dealing with the government. Also keep in mind that SBA loans will require collateral. The amount of collateral will differ depending on your situation, but they want to make sure that borrowers have “skin in the game.”

Also typically, SBA loans have a longer payment term. In fact, some SBA loans allow you to pay interest and principal with each payment.  In contrast, regular bank loans can have balloon payments at the end when the loan matures.

Other Options for SBA Loans

The SBA also offers microloans for just 10k-50k. These are more for existing companies that just need a little boost. Another option is 504 loans that are used for expansion purposes. These are long-term loans and can be paid back over decades.

As you can see, SBA loans definitely have advantages that will benefit many types of buyers. They are more flexible and might even let you defer payments. If you are a new business owner or seeking to make improvements to an existing business, you may very well want to take a look at SBA loans.

SBA loans are designed to help you grow and so is Inbar Business Group. Once your loan is in place, our Inbar Group business broker in New York City, New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, Maine and/or Massachusetts will help you find a business that meets your unique needs and requirements.