SBA Loans vs Term Loans: Which Loan Makes Sense For You?

Pros and Cons of Small Business Loans

​What Exactly are Term Loans?

One of the most common ways that small businesses receive funding is through term loans. In a nutshell, borrowers receive an agreed upon amount of money upfront, and then repay it over a specified period of time with interest. Typically the term on these loans range from one to five years. The types of lenders who offer these loans are credit unions, traditional banks, online loan companies, and the proceeds are generally used for business growth.

What are the Pros?

• Paying on time helps build your credit.
• Approvals with higher amounts.
• Receive a lump sum upfront.
• Approvals and funding times are relatively quick.

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​What are the Cons?

• Collateral and personal guarantees are often required.
• Tend to be more expensive than other loan products.
• Balloon payments are often associated with these term loans.
• Payments are usually pretty high and can cut into cash flow.

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​What exactly is an SBA Loan?

SBA Loans (Small Business Administration Loans) have stricter requirements than term loans, but also have a lower cost. The SBA does not fund these types of loans, they guarantee a portion of them, which makes it more attractive to banks to approve them. 

Repayment terms go out as far as 25 years, and have approval amounts as high as $5 million. SBA Loans are a great option for long term financing, and come with some of the lowest interest rates in the finance industry.

What are the Pros?

• Interest rates are very low.
• Terms go out as far as 25 years.
• Down payments are very low, if required at all.
• Never any prepayment penalties

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​What are the Cons?
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• Much more paperwork is needed verses other types of loans.
• Approval waiting times are much longer than term loans.
• A credit score of 680 or above is necessary.
• Often times collateral will be required.

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The Difference Between SBA Loans and Term Loans

Term Loan applications require very little paperwork, but because the SBA guarantees a portion of an SBA loan, much more documentation is required. When you partner with Small Business Capital US, we have streamlined this process down to only necessary documents, which makes the process much quicker than applying on your own.

SBA Loans have longer terms and lower interest rates available, which also means lower monthly payments to avoid cash flow problems. Term loans range from one to five years and will have higher monthly payments, but your company will be out of debt much sooner than with an SBA Loan, so there are benefits to each.

You can find out more information about the requirements, and what you need to consider before applying for an SBA Loan HERE.  It is also a good idea to use an SBA Loan Calculator to estimate how much your monthly payments will be before applying. When you have done your research, and feel confident that you are ready to apply, just click on the button below and you will be walked through an easy streamlined process.

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