The Small Business Administration recognizes that it can be difficult for small businesses to compete against larger companies for financing. Technically, the SBA doesn’t hand out loans. It simply guarantees them, which lets lenders offer better terms. An SBA loan is very similar to a traditional bank loan in a lot of ways. Knowing how SBA loans are different from traditional loans can help you decide whether you want to go through the process.

SBA Loans Require More Documents

An SBA loan is more complicated than a traditional bank loan because of the regulations and rules that lenders must follow. The process can take more time. You must have your financials in order, business and personal. However, the benefits are quite substantial over the term of the loan. But don’t expect to get funded quickly. Plan for it to take two to four months.

SBA Loans Offer Longer Terms, Better Interest Rates

SBA loans have ranges of 10 to 25 years, depending on the type of loan and your own needs. Interest rates cannot be more than WSJ prime and 2.75%, but if your credit is strong, you can often get lower rates. SBA loans are always fully amortized, so you pay off both interest and principal. You won’t get stuck with a balloon payment on the end. Over time, with lower interest rates, you pay less for the loan, which is a huge benefit.

SBA Loans Have Some Flexibility

The government offers some deferment options or interest-only payments when companies fall on hard times. Under the COVID-19 pandemic, the SBA has automatically deferred payments on some loans without penalties. The SBA doesn’t want to see businesses foreclose, so they may work with you more than a traditional bank will.

Contact GP Solutions for information about SBA loans and financing options that will fit your business needs.