Home Money & Finance Weighing Up the Pros and Cons of SBA Loans: What You Ought to Know

Weighing Up the Pros and Cons of SBA Loans: What You Ought to Know

by Olufisayo
Published: Last Updated on
pros and cons of sba loans

If you’re a small business owner trying to find your feet, you don’t have to go at it alone. In today’s day and age, the U.S. government values and supports all local enterprises — no matter your business or industry niche.

This is where the Small Business Administration (SBA) offers equal opportunity for all small business owners across America. You may have heard about SBA loans and how they can offer you the support you need when you’re just starting out.

But before you dive into your application, you ought to know the pros and cons of SBA loans — check out this blog for more.

SBA loans: What Are They?

The Small Business Administration is a government agency — this means that they do not lend money directly to you. Instead, the SBA helps to facilitate the loan process between approved lenders and small businesses.

Your application is therefore subject to two approval processes when applying for an SBA loan. The first is the approval from your lending institution, and the second is approval from the SBA itself.

What types of institutions can you get an SBA loan from? These lenders must be SBA-approved and generally include traditional banks and other microlending agencies. You can learn more about these top SBA lenders, here.

An SBA loan comes with an SBA guaranty, too. This means that the SBA reimburses your lender a percentage of the debt you owe if you default on the loan. As such, this decreases lender risk and improves your chances of receiving loan approval.

The SBA also caps the amount of interest your lenders can charge, making a full loan repayment all-the-more achievable.

The Pros and Cons of SBA Loans

With all of the above in mind, an SBA loan sounds like a brilliant solution to the financial challenges you may face as a startup, right? Well, when it comes to borrowing money there’s always a catch. But let’s look at some of the positives, first:

  • You’re almost always guaranteed loan approval due to the SBA guaranty that is offered to your lender
  • You can qualify for loan amounts that you would not otherwise qualify for due to reduced lender risk
  • Lenders are often open to larger repayment terms — this means you pay less on your monthly repayments
  • You get the benefit of a capped interest rate — the SBA ensures your loan is affordable and you can meet repayments
  • You have a variety of loan amounts to choose from — this means you can fund any size and type of project/expense
  • Businesses have full access to resource centers and assistance whenever needed

It’s not hard to see why small business owners take full advantage of the SBA loan process. There are undeniable perks that allow business owners to borrow money and pay it back without affecting their profit or cash flow. However, there are a few drawbacks to be aware of:

  • You will have to make a down payment to secure an SBA loan — this is usually 10-20 percent of the loan amount
  • You may be required to put up some form of collateral as extra insurance for your loan
  • You face personal liability if your business defaults on the loan
  • The approval process is slow — in some cases, it can take up to two months to receive approval from the lender and SBA

At the end of the day, you can take out an SBA loan for as little as $500, or as much as $5 million. It depends on your business needs and what type of financial commitment you can make.

Uncover a Trove of Entrepreneurial Expertise

With these pros and cons of SBA loans in mind, you always want to make the decision about borrowing money very carefully. Ultimately, it should never put you or your business at risk.

If you’re a budding entrepreneur and need advice on small business bookkeeping, leadership mistakes, or tips on growing your business, this site is for you!

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