Should I choose a Conventional Loan or an SBA Loan?

Business owners have several financing options when buying real estate, funding equipment purchases, or acquiring businesses. Those options can broadly be broken into two categories: conventional loans provided by a traditional bank, or SBA loans where your bank works with the Small Business Administration to provide a government-backed loan to your business. Every situation is different, and it’s important to discuss the pros and cons of each with your banker.

Benefits to an SBA loan include lower down payment requirements, longer repayment terms, and, in some cases, an easier pathway to loan approval. Since the government backs a portion of the SBA loan, it reduces risk for the bank. Therefore, borrowers that may not qualify for a conventional loan may be able to be approved for an SBA loan instead. This is helpful for new businesses or those with existing capital constraints.

Conventional loans are subject to your bank’s specific underwriting standards including cash flow requirements and adequate collateral. However, if a business meets those easily, in some cases a conventional loan can be a simple, streamlined solution for a business. Conventional loans may even have lower fees than an SBA loan. For these reasons, it is beneficial to work with an SBA Preferred Lender. These banks, like Midwest BankCentre, have an ongoing relationship with the SBA and the ability to approve SBA loan requests in-house, making the process quicker and more efficient to help level the playing field with conventional loans. If your bank is not an SBA Preferred Lender, contact one of our specialists to help you find the business financing option that’s best for you.

Originally published in  Small Business Monthly's August  issue of 2024 by Pete Zeiser, President - Chesterfield Commercial at Midwest BankCentre.