If you are considering business financing options, chances are good that SBA loans and conventional loans are at the top of your list. But what are the differences between these two types of loans and which is the option that works for you? Keep reading to find out.
What Are SBA Loans?
The most important thing to know about SBA loans is that they are guaranteed by the Small Business Administration (SBA), a government agency whose stated goal is to help Americans plan, start, and grow their business.
This, of course, includes financing. In fact, every year thousands of entrepreneurs use SBA loans to cover every imaginable business need, from commercial real estate and inventory to furniture and heavy machinery.
It’s important to note that the SBA itself doesn’t lend money. Its role is to guarantee the loans
The two most popular SBA lending programs are 7(a) loans and 504 loans. Broadly speaking, 504 loans are used to purchase real estate and large fixed assets, while 7(a) loans are used for a variety of purposes, including long- and short-term working capital, equipment, and real estate, among others.
What Are Conventional Loans?
As their name implies, conventional loans adhere to the traditional concept of loan, where an institution provides funding that you are expected to repay over an agreed-upon amount of time.
A conventional loan can be used for a wide range of goals, including:
- Working capital
- The purchase of inventory
- The purchase of real estate
- Consolidation of business debt
- Business expansion
Unlike what happens with an SBA loan, when you choose a conventional loan, the lending institution (usually a bank or credit union) shoulders alone the risk of nonpayment, as no government agency guarantees this type of loan.
As we’ll see below, this is can make a big difference for you.
SBA Loans vs. Conventional Loans: The Pros and Cons
Now that you know the ins and outs of both SBA loans and conventional loans, these are the pros and cons you should consider:
- Conventional loans have fewer strings attached when it comes to how to use the loan proceeds. If this type of flexibility is important to you, conventional loans may be the option that fits you best.
- The government guarantee means that SBA loans may be the best option if your business is relatively new and lacks a long credit history.
- The opposite is true: if your business has a solid track record of financial success, then a conventional loan may offer more advantages than an SBA loan.
- Finally, SBA loans offer longer repayment terms than conventional loans, which usually means lower monthly payments.
Gellyfish: Certainty of Execution in Business Financing
Looking for business financing in California, or anywhere in the United States? Gellyfish is here to help.
Whether you opt for conventional loans or SBA loans, Gellyfish offers financing with the certainty of execution you need to take your business to the next level.
Contact us today by email (firstname.lastname@example.org), telephone (877-800-4493), or social media (Facebook, Twitter, LinkedIn), to schedule a free consultation or to learn more about our full range of financing options.