What is the clearest signal that you should pursue an SBA loan over a conventional business bank loan? “When your conventional lender says ‘not now,'” says David Canet, managing director at Connect One Bank.
Generally, conventional bank loans offer the lowest interest rates and best terms on business loans, which make them the first stop for many borrowers seeking financing. However, if a borrower doesn’t qualify for a bank loan, a Small Business Administration loan is often the next best option.
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SBA loans vs. bank loans: At-a-glance comparison
The following table outlines what you can typically expect with each loan type, though exact details vary by lender and circumstances.
SBA loans | Bank loans | |
|---|---|---|
Interest rates | 10% to 13.5%. | 6.37% to 10.98%. |
Loan amounts | Up to $5 million. | Up to $15 million. |
Repayment terms | 10 (working capital and equipment) or 25 years (real estate). | Up to 10 years. |
Min. time in business | 2 years (though startups with otherwise strong credit profiles may be considered). | 2 years. |
Min. credit score | 650 (680 for 504 loans). | 700. |
Funding speed | 30 to 90 days. | Several weeks (sometimes longer). |
Best for | Businesses with strong cash flow and good credit but that fall short on collateral, operating history or equity requirements. | Businesses with great credit, strong finances, multiple years in operation and plenty of collateral. |
Overview of conventional bank loans
Expert on the ground
Mark ValentinoPresident of Business Banking, Citizens Bank
Banks, credit unions and other financial institutions offer small-business loans. The amounts, interest rates, fees, eligibility requirements and other terms of these loans vary depending on the bank and its guidelines.
General eligibility requirements
Conventional bank loans can be hard for many small businesses to qualify for because the lender takes on the full risk if a borrower fails to repay the loan (defaults). Each bank sets its own qualification standards for the loans it offers. However, some general requirements include the following:
- At least two years in business.
- Minimum annual revenue amount.
- Strong credit history.
Types of small-business loans offered by banks
While they may be branded with specific names, the following are some common types of small-business bank loans:
Uses of conventional bank loans
Bank loans can be used for a number of purposes including, but not limited to, the following:
- Purchase of land or commercial property.
- Expansion or remodel of an existing business.
- Working capital to improve business cash flow.
- Purchase of equipment and machines.
- Funds to consolidate business debt.
Overview of SBA loans
Expert on the ground
David CanetManaging Director, Connect One Bank, SBA
If you’ve been turned down by a bank for its conventional loan program, you may still qualify for an SBA loan. These loans are not offered directly through the Small Business Administration but are instead handled by approved lending partners. Some of these partners may even be the same lenders that you looked at for a conventional bank loan.
Qualification for an SBA loan can be easier for borrowers because SBA loans are guaranteed by the Small Business Administration, meaning there's less risk to the lender in the case of a loan default.
The SBA’s Lender Match tool can help you find a lender in your area. NerdWallet has also compiled a list of the best SBA lenders.
» MORE: Pros and cons of SBA loans
General SBA eligibility requirements
Eligibility requirements are determined by the SBA loan program and the lender. A complete list of requirements will be given to you by the lender, but some general eligibility requirements for SBA loans include:
- Your business must meet SBA size standards.
- Your business needs to be for profit and officially registered.
- Your business should be located and operating in the U.S. or its territories.
- Your business must be 100% owned by U.S. citizens or nationals. (This policy took effect March 1, 2026. Previously, the requirement was 51%.)
- Your credit needs to be adequate for loan repayment.
- You’ve been unsuccessful in getting financing under reasonable terms from other lenders.
Types of SBA loans
SBA loans can be used to start or expand your business. There are three main types of SBA loans available to borrowers:
There are also several other SBA loan programs, including SBA Express loans (which fall under the 7(a) umbrella), SBA disaster loans and the SBA Working Capital Pilot program.
Uses of SBA loans
How you use the funds from your SBA loan depends on the type of loan you get. For example, SBA 7(a) loans can be used for working capital, while 504 loans cannot. Here are some common uses of SBA loans:
- Working capital or revolving funds.
- Real estate, equipment, machinery, furniture, supplies and materials purchases.
- Construction or renovation of buildings.
- Acquiring, merging with or expanding a business.
- Refinancing existing business debt, in some cases.
- Improvements to existing facilities including land, streets, parking lots, landscaping and utilities.
Frequently asked questions
What are the downsides of getting an SBA loan?
It can take one to three months to get approved for an SBA loan and receive the funds. On top of that, there are heavy documentation requirements for the SBA loan application. You may need to put in a down payment on the loan, and any owner with a 20% or higher stake in the business must sign a personal guarantee.
What disqualifies you from an SBA loan?
Poor credit and lack of cash flow are two of the more obvious disqualifications. The SBA also has an entire list of industries it won’t lend to as well as a list of unacceptable uses of the funds. Read about all nine things that automatically disqualify you from an SBA loan.
How many years do you have to pay back an SBA loan?
SBA 7(a) loans for working capital or inventory have terms up to 10 years. SBA 7(a) equipment loans typically have a 10-year term but can run longer if the equipment’s useful life exceeds 10 years. SBA 7(a) real estate loans can have terms up to 25 years.
SBA 504 loans typically have 10-, 20- or 25-year terms, depending on the asset financed. SBA microloan terms max out at six years.
Can I get a bank or SBA loan to start my business?
It can be challenging to get a conventional bank loan when you’re starting a business. Banks often require that your business be in operation for a minimum of two years before considering your application.
However, the SBA microloan program is targeted to startups. And some SBA lenders will consider startup business owners with otherwise strong credit profiles (great credit score, strong cash flow, stable business finances and demonstrated management skills).
