SBA loan versus commercial or home equity loan

We are sometimes asked by borrowers why one would choose a SBA loan to fund a business project versus a standard commercial loan or a home equity loan.

We put together this table showing some of the key differences regarding the popular loan options for small business entrepreneurs:

SBA LoanCommercial LoanHome Equity Loan or HELOC
EligibilitySmall businesses with < 500 employeesAny established businessesHomeowners with equity in their properties
Credit QualityMediumHighHigh
CollateralNot needed but all collateral (personal & business) pledgedFirst lien on all business assetsProperty is used as collateral
Personal GuaranteeYes for all >20% ownersYesYes
Interest RateHighestLowerLowest
Terms10 or 25 years5 to 7 years most commonVaries but 5 - 10 years the most common
Lending InstitutionSBA-approved lenders (~ 1K)Banks and other financial institutions (~10K)Banks and other financial institutions (~10K)
Maximum Amount$5,000,000Any amountBased on the equity in the property
Down Payment>10% if acquisition20%+None
Closing time<45 days for express loans; 45 - 90 days for real estate, acquisition, or > $350K30 to 60 days.<30 days

Even though SBA loans cost more than commercial, mortgage, or home equity loans or lines, , here are the top reasons SBA loans are selected by borrowers:

  • No collateral required
  • Longer amortization periods

As a result of these two key benefits, SBA loans are wildly popular for business acquisition loans since most small businesses do not have sufficient collateral and borrowers need more than five years to pay back the principal.