SBA vs. Conventional Loan: Which Fits Your Company?

September 12, 2024

For small businesses looking to accelerate growth, there are several types of funding options that can help you achieve your goals, such as lines of credit, loans, business credit cards, or existing cash reserves.

Two of the most popular financing options for small business owners are SBA loans and conventional bank loans. Each offers different advantages and application processes that may be better suited for your business.

It can be challenging to know which of these two funding options is the best fit for your business. Today, we will explore the advantages of an SBA vs. conventional loan and unpack how Texas Gulf Bank can help your business secure the financing needed to thrive.

SBA Loans: Designed To Strengthen Businesses

The Small Business Administration (SBA) is a U.S. government agency dedicated to supporting and promoting small businesses by providing financial assistance needed to thrive. One way the SBA supports small business owners is by guaranteeing a percentage of the loan amount of business bank loans for purposes such as expanding operations, purchasing equipment, or managing cash flow.

Because the federal government backs SBA loans, more business owners may be able to access strategic financing solutions they might not otherwise qualify for due to a short business history or lack of collateral.

Compared to conventional business loans, SBA loans require a more thorough application process. Businesses interested in applying for SBA loans must meet specific SBA eligibility requirements, including:

Being a for-profit established business operating within the United States
Meet SBA size standards for a small business
Demonstrate a financial need

Texas Gulf Bank is ready to help qualified businesses apply for SBA funding. We provide tailored support through a dedicated SBA loan specialist who understands the ins and outs of the SBA lending process.

Through an SBA loan, you may be able to obtain the financial flexibility and resources needed to make major purchases, cover day-to-day operating expenses, and invest in the future of your business. Interested businesses can apply for two effective types of SBA loans: the SBA 7(a) and SBA 504 loan.

SBA 7(a) Loans

The SBA 7(a) loan is a popular loan program because this SBA loan offers a wide range of financing options. This small business loan can be used for various purposes, including purchasing inventory or equipment, and refinancing existing business debt.

Key features of SBA 7(a) loans include:

Loan Amount: Up to $5 million.
Repayment Terms: Loan terms of up to 25 years for commercial real estate, 10 years for heavy equipment, and 7 years for working capital.
Primary Benefits: Typically provides loan fund versatility, as well as extended repayment terms.

SBA 504 Loans

The SBA 504 loan program is designed specifically to help businesses purchase fixed business assets – such as owner-occupied commercial real estate or large equipment. In limited situations, an SBA 504 loan can include funds for future operations, but they are usually used to purchase commercial real estate and other valuable fixed assets.

Key features of SBA 504 loans include:

Loan Amount: Up to $5.5 million.
Repayment Terms: 10, 20, or 25 years.
Primary Benefits: Long-term fixed rates, lower down payment than conventional loans, longer term maturities and higher loan to value requirements (less collateral coverage)

Whether your business opts for an SBA 7(a) loan or SBA 504 loan, Texas Gulf Bank may be able to help you secure the financing needed to elevate your business operations and invest in your business future.

Conventional Bank Loans: A Flexible Alternative

Conventional business bank loans offered by Texas Gulf Bank are another popular financing option for small business owners who need reliable financing for a specific purpose.

Texas Gulf Bank can tailor a conventional business loan to meet the exact needs of your business, offering flexibility in loan amounts, repayment terms, and other loan features. Consider the available options that might fit your needs:

Working capital line of credit: Access short-term financing solutions to cover gaps in revenue collections versus operating expenses.
Equipment loan: spread out the costs of acquiring heavy machinery and other specialized equipment.
Commercial real estate loan: Grow your company’s physical presence with an owner-occupied commercial real estate loan, which may help you acquire new property or expand on existing property.

Choose the Right Loan for Your Business

Deciding between an SBA loan and a conventional bank loan will involve weighing several factors, including the age of your business, your credit history, and your specific financing needs. To determine which type of loan is best for you, consider:

New Businesses or Businesses with Little to No Credit History: SBA loans may be more accessible for businesses with limited credit history.
Established Businesses with Strong Credit: If your business has a solid credit history and established financials, a conventional bank loan may offer more favorable loan terms.
Specific Financing Needs: If you need long-term financing for fixed assets, an SBA 504 loan might be the best option. For general working capital or refinancing, an SBA 7(a) loan or a conventional loan could be a better fit.

The experienced loan officers at Texas Gulf Bank can help you evaluate your loan needs and identify which loan option best suits your financial and business goals.

SBA vs. Conventional Loan: Take Action Today

Choosing the right loan program is crucial for the growth and long-term success of your small business. Whether you’re considering an SBA loan or a conventional bank loan, it’s important to explore all your options and find the best fit for your unique needs.

Reach out to the commercial lending team at Texas Gulf Bank to learn more about the different types of business loans available. With over 110 years of experience supporting small businesses throughout the Southeast Texas Gulf Coast region, our team is ready to help you achieve your growth initiatives.

When partnering with Texas Gulf Bank for your financing needs, you can expect to receive:

Professional and personal attention
Access to skillful loan officers with extensive experience in SBA and term loans
Strategic lending solutions
Prompt decisions on completed loan application packages

If your business is evaluating an SBA vs. conventional loan and needs helpful guidance, contact Texas Gulf Bank today. Reach us at 1-800-467-7216, by email at sbaloans@texasgulfbank.com, or by visiting one of our many local banking centers.

All loans subject to credit approval