January 24, 2022 By Suzanne Robertson

There are lots of loan products to explore if you need funding for your small business. In fact, a Google® search for “small business loans in the U.S.” produces just about 213 million results. Of course, there’s no way to look at even a fraction of this many loan offers. When you whittle it down, two types of loans often prevail: Small Business Administration (SBA) loans and term loans. Which raises the question: small business term loans vs. SBA loans?

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The answer may vary based on your situation. This article explores term loans and SBA loans to help you choose the best type of funding for your unique business.

What are Term Loans?

A term loan is a common way to fund a small business. In short, borrowers get a lump sum upfront then repay with interest over a specific period. A standard term loan is typically paid back over the course of one to five years. These types of loans for small businesses are offered by traditional banks, credit unions and online lenders, and they can be a good option for a businesses expansion and those who need funds faster than other loan products can provide.

Small business term loans can be better for small business owners seeking a fixed rate versus a variable rate. The main reason you might prefer a fixed interest rate is that predictable monthly payments can help you build a good credit history. Doing so may be worth the short-term credit benefits, even if, long-term, variable rate loans are less expensive. You can use your loan to buy equipment, consolidate your debts, or expand your operations.

Pros and cons of term loans

Term loans work well as small business loans in a variety of situations, but they aren’t perfect. Their advantages mainly pertain to factors that stand out more in the short term. Their drawbacks mostly concern aspects of small business borrowing that often don’t become apparent until after you take out a loan. The pros and cons of term loans include:


  • Borrowers receive cash upfront
  • Higher loan amounts are available
  • It requires shorter approval and funding time
  • On-time repayment can help build your credit


  • A personal guarantee or collateral may be required
  • Term loans are typically more expensive than other funding products
  • Some term loans come with balloon payments, or a one-time required payment at the end of the term that’s typically larger than the loan installation payments
  • Short term loans can have very large payments that cut into cash flow

What is an SBA Loan?

A Small Business Administration loan is a low-cost term loan with typically stricter requirements for approval. The SBA doesn’t provide funds for this type of loan. Instead, the federal agency guarantees a portion of the loan amount, making SBA loans more attractive to banks.

SBA loans are available up to $5 million and carry repayment terms up to 25 years, depending on use of funds. SBA loans also have some of the lowest APRs, making them a good option for long-term financing.

Pros and cons of SBA loans

Many experts consider SBA loans the gold standard of small business lending. The fine print of your SBA loan contract will typically display only favorable terms, especially as rates and amounts go. Perhaps somewhat unsurprisingly, the favorable terms mean that qualifying and applying can be tougher. With expert assistance, though, the application process can be a breeze – and well worth your time.


  • SBA loans carry low interest rates
  • They have long repayment terms
  • They typically offer the lowest down payments, if required
  • Lower loan amounts are available
  • There are no prepayment penalties


  • More paperwork may be required than other types of loans
  • Approval time may be longer than term loans
  • A strong credit score is required
  • An SBA loan could require collateral

How Term Loans and SBA Loans Differ

The small business term loans vs. SBA loans question raises some obvious differences between the two. You can find most of these differences for yourself if you read the fine print of any loan offers you consider. Doing so, though, requires immense patience and focus. We’ve outlined some of the differences below:

  • Application length and wait time. Because they guarantee a portion of your loan, the SBA needs more information than a term loan application might require. However, by partnering with a loan facilitator who has extensive SBA experience, loans can be completed easily and swiftly.
  • Repayment terms. Another advantage to SBA loans is longer terms, which means lower monthly payments for business owners. SBA 7(a) loans have terms that range from 10 to 25 years, leading to very low monthly payments. This can avoid a cash flow crunch.
  • Interest rates. SBA loans typically have lower interest rates than term loans. This difference may stem from the fact that traditional banks offer term loans without the guarantees associated with SBA loans. As such, the institutions behind term loans must charge higher interest rates to offset their risk.
  • Loan amounts. SBA loan amounts are typically lower than the amounts available with term loans. With these smaller loan amounts come fewer impositions on your cash flow. Plus, professional assistance with the loan application process means you can put in less work to obtain these less imposing loans.
  • Flexibility. You can use SBA 7(a) loans to obtain working capital, buy commercial real estate, or consolidate your debts. SBA 504 loan funds enable you to open new locations, expand your team, or upgrade your equipment. SBA microloans are valid for all purposes except paying debt and purchasing commercial real estate. Acceptable term loan uses may vary by provider.

What to Consider Before Applying

Before you apply for either a small business term loan or an SBA loan, you should ask yourself a few questions. The answer to these questions can help you decide which type of small business loan is right for you. You’ll likely find that these questions are quite easy to answer as well. Find them below.

  1. How Much Do You Need?

It’s no secret that banks want to make money. Because of that, they may decline an application for lower loan amounts. For example, a loan for $10,000 costs about the same as a $100,000 loan to originate. Of course, the bigger loan brings in more revenue for the bank.

The maximum amount of a loan allowed by the SBA is $5 million but $13,000 is the average SBA micro-loan size. SmartBiz Loans offers SBA loans from $30,000 – $350,000.

  1. How Fast Do You Need Funds?

The SBA loan process can be lengthier than the term loan process. If you need funds immediately to take advantage of an inventory purchase or other business building opportunity, a term loan may be the right choice.

If you’ve determined that an SBA loan is your best bet, make sure you do your homework and choose a lender or loan facilitator with experience and positive customer reviews.

  1. Your Credit Scores

More weight is given to your personal credit scores and business credit scores when you apply for an SBA loan. If your scores don’t quite qualify you for an SBA loan, paying off a term loan on time can help build your credit.

Where to Apply

SmartBiz Loans is your one-stop-shop for both SBA loans and non-SBA term loans. There’s just one easy application to complete and you can prequalify in minutes without initially impacting your credit score.

  • SBA Loans

If you qualify, an SBA loan with low rates and long terms can be the best way to grow your business and save money. SBA loans offered through SmartBiz® partner banks can take as little as 7 days to fund after the application is complete. To find out if you’re prequalified, visit the SmartBiz Loans website here.*

  • Small Business Term Loans

Low-cost SBA loans are considered the “gold standard” in small business funding because they have some of the lowest interest rates and lowest monthly payments available. However, not every business owner initially qualifies and some businesses need funds more quickly than even our streamlined SBA process can provide. In such cases, small business term loans can make for great alternative financing options.

Since not all small business owners qualify for an SBA loan, we’ve worked with our bank partners to offer SmartBiz Loans clients the next best loan option if you aren't quite ready for an SBA loan or need funds more quickly. To find out if you’re prequalified, visit the SmartBiz Loans website here.*

*We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.