Commercial Loan vs SBA Loan

Commercial Loan vs SBA Loan: Commercial loans are conventional loans funded entirely by lenders, often with stricter eligibility criteria whereas SBA loans are government-backed, with competitive rates and longer terms.

Every business needs capital to thrive, and navigating the world of loans can be difficult. Here comes two prominent options that are: Commercial Loan and SBA Loan. But which one is right for you? Let’s break down the key differences to help you make an informed decision.

Commercial Loan vs SBA Loan

Commercial Loan

A commercial loan is a loan provided by a financial institution, such as a bank or credit union, to businesses for various purposes. These loans are typically used for short-term needs, such as working capital, inventory purchases, equipment financing, or real estate acquisition. Commercial loans are often more flexible in terms of usage and repayment terms compared to SBA loans. However, they may require higher credit scores and collateral to secure the loan.

  • Issued by: Banks, credit unions, and online lenders.
  • Lending limits: No set limits; average loan amount is about $663,000.
  • Credit score requirements: Minimum score of 580.
  • Time to fund: As quickly as a few days to a few weeks.
  • Loan types available: Term loans, equipment loans, microloans, lines of credit, and more.


  • Flexibility in terms of usage.
  • Faster approval process compared to SBA loans.
  • May offer competitive interest rates for businesses with strong credit history.


  • Higher credit score requirements.
  • Collateral may be required.
  • Interest rates can be higher for businesses with lower credit scores.

SBA Loan

An SBA loan is a loan partially guaranteed by the Small Business Administration, a government agency that helps small businesses access financing. These loans are designed to support small businesses that may not qualify for traditional commercial loans due to lack of collateral or credit history. SBA loans offer longer repayment terms and lower down payments, making them an attractive option for small businesses looking to start or expand their operations.

  • Issued by: Banks and online lenders.
  • Lending limits: Up to $5.5 million.
  • Credit score requirements: Varies, but generally more lenient.
  • Time to fund: Typically 30 to 90 days.
  • Loan types available: SBA 7(a), SBA Microloan, SBA 504/CDC loan.
  • Time in business requirements: Startups may be eligible.


  • Lower down payment requirements.
  • Longer repayment terms.
  • Competitive interest rates.
  • Easier qualification for businesses with limited credit history or collateral.


  • Longer approval process compared to commercial loans.
  • Strict eligibility criteria set by the SBA.
  • Additional fees may apply.

Commercial Loan vs SBA Loan

AspectCommercial LoanSBA Loan
Interest RatesHigher, based on credit riskLower, due to SBA guarantee
Repayment TermsShorter, varies by lenderLonger, more manageable monthly payments
EligibilityBased on lender’s criteriaMust meet SBA size standards and guidelines
Approval TimeFaster, less documentation requiredSlower, extensive documentation and review
Use of FundsVery flexibleFlexible but must adhere to SBA approved uses
Collateral RequirementsVaries, often requiredOften required, but SBA guarantee can help
Loan AmountsCan be largerTypically smaller, up to $5 million for some programs

What are the factors that should be consider while choosing?

Consider the following factors when choosing between SBA loans and conventional loans:

  • Business Age: SBA loans are better for startups, while conventional loans suit established businesses.
  • Credit History: If your credit score is lower, SBA loans may be more accessible.
  • Loan Amount: SBA loans have limits, whereas conventional loans can cover larger sums.

How to apply for Commercial Loan?

  • Estimate Your Borrowing Power: Assess how much you need to borrow and realistically afford to repay.
  • Evaluate Your Eligibility: Review qualification factors such as your business and personal credit score, annual revenue, time in business, and available down payment or collateral.
  • Compare Commercial Lenders: Research and compare lenders to find the best fit for your needs.
  • Gather Paperwork and Apply: Compile necessary documents, including personal and business bank statements, tax returns, and financial statements.
  • Review Closing Documents: Once approved, review and sign the closing documents.

How to apply for SBA Loan?

  • Find a Lender: Only lenders who partner with the Small Business Administration (SBA) can offer SBA loans. Use the SBA’s Lender Match tool to find a lender that suits your needs.
  • Choose Your Loan Type: SBA loans typically refer to 7(a) loans, which are the primary SBA loan program. Determine if this type of loan aligns with your business requirements.
  • Check Eligibility: Ensure you meet the eligibility criteria for the chosen SBA program. Factors include your business’s income source, ownership, and location.
  • Gather Documents: Collect the necessary documents for your loan application.
  • Apply: Submit your SBA loan application to the lender you’ve selected. Work closely with them to complete the process. Remember that SBA loans can be used for various business purposes, including working capital, fixed assets, and more.


Commercial loans and SBA loans have their own advantages and disadvantages. Business owners should carefully evaluate their financial needs, creditworthiness, and long-term goals before choosing between the two options. While commercial loans offer flexibility and faster approval, SBA loans provide government-backed support and favorable terms for small businesses. Ultimately, the decision between a commercial loan and an SBA loan will depend on the specific circumstances and objectives of the business seeking financing.

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