How to Compare SBA vs Conventional Business Loans

Compare SBA and conventional business loans on rates, terms, requirements, and approval speed to pick the right financing.

Compare interest rate structures. SBA loans typically run prime + 2.75% to prime + 4.75% for 7(a) loans as of 2026. Conventional business loans range from prime + 1% to prime + 8%, depending on credit and collateral. Factor in SBA guarantee fees of 2-3.75% of loan amount, paid upfront or rolled into the loan.
Evaluate down payment requirements. SBA 7(a) loans require 10% down for existing businesses, 15% for new businesses, 15% for real estate. Conventional loans typically demand 20-30% down for real estate, 10-25% for equipment, and often require full collateralization. Calculate your available cash against these thresholds.
Review term length options. SBA loans offer up to 25 years for real estate, 10 years for equipment, 7 years for working capital. Conventional loans rarely exceed 20 years for real estate, 5-7 years for equipment. Longer terms mean lower monthly payments but higher total interest costs.
Assess approval timeline and requirements. Conventional loans typically close in 30-60 days with streamlined underwriting. SBA loans take 60-90 days due to dual approval process (lender + SBA). SBA requires personal guarantees from owners with 20%+ equity, detailed business plans, and extensive documentation.
Calculate total cost of capital. Add up rate, fees, and opportunity cost of down payment for each option. Example: $500K SBA loan at 8.5% with $15K fees vs conventional at 10% with $100K down. Factor in what that extra $85K down payment could earn elsewhere.
Consider prepayment and covenant differences. SBA loans typically allow prepayment without penalty after year one. Conventional loans may have prepayment penalties for 2-5 years. SBA loans have fewer restrictive covenants but more operational reporting requirements. Review debt service coverage requirements—usually 1.15x minimum for SBA, 1.25x+ for conventional.