SBA Loan vs Commercial Loan 2022: How Do They Compare?

Somewhere in the neighborhood of 600,000 small businesses launch in the United States every year. And within the first two years, 20% of them will likely collapse. There are many reasons why, but you can probably guess the number one reason: money. Launching a business can be expensive, never mind working toward profitability. Many small businesses look for outside help in the form of loans. In this blog, we compare the SBA loan vs commercial loan to better understand what might be a smart choice for your small business.

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What is an SBA loan?

The Small Business Administration (SBA) makes it more feasible for small businesses to get financial support through a lender, like a bank or credit union. It sets guidelines for its loans and also reduces the risk for the lenders since they’re guaranteed by the government.

What exactly do these loans look like?

3 types of SBA loans

There are various types of SBA loans that you can choose from. Let’s go through the basics.

1. 7(a) loans

This is the most common type of SBA loan. The 7(a) loan provides financial assistance to small businesses with special requirements. It’s often used when real estate is a factor in the business’s purchases. However, small businesses will also use it for working capital, refinancing debt and purchasing items like furniture and supplies.

The maximum SBA 7(a) loan amount is $5 million. To qualify, small business borrowers must:

  • Be operating for profit
  • Do business in the United States
  • Be able to prove their need for financial assistance
  • Be caught up on their debt obligations
  • Have invested equity in the business
  • Have tried using alternative funding (like personal assets) first

2. 504 loans

Similar to 7(a) loans, 504 loans also offer up to $5 million in financial assistance. The financing is long-term and comes with a fixed interest rate.

504 loans are used for major fixed assets related to the business’s growth and the creation of new jobs. For example, you can use this for purchasing or constructing buildings, land or equipment. Unlike the 7(a) loan, you cannot use it for working capital, inventory, real estate or managing debt.

To be eligible, borrows must:

  • Be operating for profit
  • Do business in the United States
  • Have a tangible net worth of lower than $15 million
  • Have an average net income of less than $5 million (after taxes) for at least the last two years prior to applying for the loan

3. Microloans

Microloans are exactly what they sound like! They provide up to $50,000, although the average loan amount is $13,000. The SBA disperses these funds to designated intermediary lenders, who then administer the loans to eligible borrowers.

Because each of these intermediaries will have its own requirements, borrowers must get their individual eligibility conditions. Typically, lenders want some kind of collateral, as well as a personal guarantee. In other words, if the business fails to pay the loan back, the owner takes personal responsibility for it.

What is a commercial loan?

A commercial loan is based on the borrower’s debt. The relationship happens between a small business and a financial institution, like a bank. The funding is larger and generally used for more major expenses and operating costs that the business simply can’t afford. Furthermore, commercial loans give small businesses another avenue for securing funding if they’re having a hard time accessing bonds or equity markets — which can be common since the upfront costs are steep and the regulations are complex.

During the application process, borrowers need to commit some sort of collateral — like property. They’ll also need to provide financial statements demonstrating that they’ll be able to repay the loan as expected.


What are the main differences between an SBA loan vs commercial loan?

If you’re a small business looking for financial support, you might be wondering about an SBA loan vs commercial loan, and which is a better fit for your company. It can be especially confusing if you’re a first-time borrower. Let’s compare the two across a few key factors.

Application process

Unlike SBA loans, commercial loans are not guaranteed by the government, so they’re a greater risk to lenders. Because of this, the application process is more demanding. Commercial lenders have to be more strict when it comes to who they’ll loan money to. On the other hand, they also offer a greater variety of finance options than SBA lenders.


One of the most significant differences between the two is that SBA loans often have longer repayment plans and lower interest rates. However, every borrower’s situation is unique. The time to funding will ultimately depend on the lender, paperwork, and other variables.


Again, the process of securing a commercial loan will likely be more involved for a small business, compared to an SBA loan. Plus, you need to have considerable money in the bank so that the lender doesn’t have to worry about the business’s inability to repay the loan, proving that the old adage rings (partially) true: Banks like to loan money to people who don’t really need it.

Many small businesses aren’t in this position, which is when an SBA loan might be more advantageous.

Which loan is best for me?

So when it comes to an SBA loan vs commercial loan, what’s the best fit for your small business?

Because SBA loans are guaranteed by the government, you can secure a lower interest rate. Your repayment terms can last as long as 25 years, whereas commercial loans usually have to be repaid within five years.

If you apply for an SBA loan for less than $350,000, you won’t be required to provide any personal collateral, which means you’re not risking any of your own assets. SBA loans are also more flexible.

On the flip side, conventional loans can be easier to apply for. You only have to meet the bank’s requirements, whereas with an SBA loan, you have to meet the bank’s and the government’s requirements. For the same reason, your money might also be dispersed faster.

There are several ways to fund your business. When trying to decide between an SBA loan vs commercial loan, ask yourself these questions:

  • What kind of financial support does my business need?
  • How much time do we need to repay it?
  • What am I willing to put on the line to secure this funding?

This will help you determine the best fit for your business.

How SmartBiz can help you

SmartBiz® works with a network of lenders to help small businesses like yours find their footing. In just five minutes, find out if you prequalify for up to $350,000. Just tell us a little bit about how you want to use your loan and how much you want to borrow. We’ll work to match you with the right lending partner to meet your needs. Our dedicated teams support you every step of the way to make the loan process as easy as possible. We’ve delivered $9 billion to small businesses, with more than 230,000 entrepreneurs funded.

Apply now to learn more about our process and see if you qualify*!

*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.