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SBA Loans vs. Non-SBA Loans

There are many options when it comes to small business loans. There are startup loans, equipment loans, business credit cards, business line of credit options, and loans to help recover from disasters. The problem is not only determining which type of loan would work best in a particular financial situation, but also whether a traditional or SBA loan would be a better fit. What are the pros and cons of each, and how does one really determine which option is right one?

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SBA Loan Pros

These are loans that are backed by the Small Business Administration and that are offered by SBA partner lenders. The great thing about this is that, due to the guarantee, the lender enjoys reduced risk. This has allowed small business owners to secure loans with lenders who are otherwise reluctant to enter the small business market.

SBA Loan Cons

The use of these loan proceeds is more strictly regulated. Everything from which loan you take out to how the loan proceeds can be spent is regulated by the federal government, giving business owners somewhat less freedom. Also, there is often a cap on how much money can be lent, leaving the possibility that the funds will not be sufficient to cover the need.

Non-SBA Loans Pros

Non-SBA loans generally offer lenders freedom to use proceeds however needed. Lenders are also free to lend as much as they want, meaning neither borrowers nor lenders are limited by government maximums on loan proceeds. Loans can be taken out for any need for which the lender approves funds.

Non-SBA Loans Cons

If you have stellar credit and plenty of money or collateral, this type of loan is easy to get and offers low interest rates. If, however, your credit is not so stellar or you are lacking in funds in the first place, these loans can be difficult to land. There is plenty of red tape, and lenders are looking to mitigate risk as much as possible. This means if you show signs of being a risk, such as poor credit, a poorly written business plan, lack of experience, or any number of other factors, you could be denied repeatedly.

Each financing option has good qualities and bothersome ones. The key is to research each one diligently, recognizing that if the other loans do not pan out, the SBA loan programs may be your only choice anyway.

How have you decided between SBA and non-SBA loans for your business?

This article was originally published by Biz2Credit

This article was submitted by Faith Stewart. Faith Stewart has a BBA with a major in accounting and spent 10 years working in the various aspects of accounting and finance before pursuing her passion for writing.

Published: September 5, 2013
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