Side-by-Side Look: SBA Loans Versus Conventional Loans

How does the SBA 7(a) loan program compare to a conventional bank loan?

The Small Business Administration (SBA) has many resources for business owners. Money is one of them – certainly enticing for anyone looking to start, scale or shift directions in their business.

The SBA 7(a) loan program allows lenders to provide loans within the SBA’s guidelines. The SBA guarantees the repayment of these loans.

The SBA’s website explains, “When a business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements with an SBA guaranty.”

Compared to a conventional bank loan, SBA guaranteed loans offer longer terms, require less collateral and are structured to drive growth.

Take a look at the chart below for a deeper comparison.

SBA guaranteed bank
loan – 7(a)
Conventional bank loan
Loan Amount Up to $5 million Any amount
Interest Rate Prime + 2.75% (or less) 4-7%
Term* Up to 10 years Usually 3-5 years
Covenants None required by SBA At bank’s discretion – usually significant
Business Collateral Fixed assets** Fixed, personal and
current assets
Guaranty Full personal guaranty Depends on terms & assets
Uses Equipment, working capital,
business acquisition
As allowed by bank
Debt to Equity Ratio 75:25*** 25:75
Origination Fee 3% ~1%
Debt Service Coverage Ration (DSCR) 1.4 to 1 1.2 to 1

*Assumes that the loan is not made for the purchase of real estate

**The SBA collateralizes term debt with fixed assets only because it allows current assets to remain unencumbered for use in securing a revolving line of credit

***This is a guideline and can vary depending on DSCR; higher DSCR (i.e. better debt service coverage) enables higher debt to equity ratios (i.e. weaker balance sheet)


SBA 7(a) loans play a part in over half of our transactions. Securing an SBA loan can be a tricky endeavor. Throughout our 14 years in business we’ve learned how to walk through the process successfully and gathered tips to make it easier for others.

We’ve recently shared some of those tips on the Axial Forum:

1. Top 5 Tips for Navigating SBA Financing for Acquisitions
2. Top 5 Things to Know About Terms and Conditions for SBA Loans


 Picking the right bank for your SBA financing is vital. Here are two insider tips for making that decision a good one.