Small Business Term Loans vs SBA Loans: Which Is Best for You?

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 US” produces about 213,000,000 results!

This article explores term loans and SBA loans to help you choose the best type of funding for your unique business.

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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 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 can be a good option for businesses expansion and those who need funds faster than other loan products can provide.


  • Borrowers receive cash upfront
  • Higher loan amounts available
  • 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 period of payments after the term required to pay off the remaining principle.
  • 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.


  • Low interest rates
  • Long repayment terms
  • Lowest down payments, if required
  • Lower loan amounts available
  • No prepayment penalties


  • More paperwork may be required than other types of loans
  • Approval time may be longer than term loans
  • Strong credit required
  • May require collateral

How Term Loans and SBA Loans Differ

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.

The other advantage to SBA loans re 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.



What to Consider Before Applying

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.

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.

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 offer 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.

Non-SBA 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.

As a result, we 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.

Next Steps

If you’re interested in an SBA loan, your best bet is to assess the financial health of your business before you apply.

SmartBiz Advisor is an educational tool helps you learn about how banks typically evaluate your business and recommends ways to increase your likelihood of approval when applying for the low-cost funding you deserve.

Sign up for SmartBiz Advisor here to get your unique “Loan Ready Score.”



* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.