Pro's & Con's of SBA Loans

The United States Small Business Association (SBA), a branch of the federal government, is an association dedicated to helping small businesses in various ways. Most notably, they provide a few different types of loans for small businesses which are unable to secure financing on reasonable terms from normal institutions, such as banks. They do not directly lend their own funds to small businesses, but rather, operate through private lenders which are guaranteed by the SBA. There are many different types of loans available through the SBA, each with its own pros and cons, but they all share a few.

Some of the cons of SBA loans include potentially high interest rates on smaller loans, though actual interest rates will depend on the private lender. Generally, the lower the sum of the loan, the higher the interest rate will be. They are also typically fairly small loans. The SBA can usually only guarantee $1,000,000 in most cases, but it is considered a fairly large amount of money for an SBA loan. The largest SBA loans potentially can be is $2,000,000. Lastly, SBA loans can be very difficult to acquire. There is a lot of administration and paperwork required to apply and be approved for an SBA loan.

There are some advantages, however, of SBA loans. First and foremost is the fact that they are usually made available to companies who can't secure financing elsewhere. Also, although they have potentially high interest rates, many lenders offer very reasonable rates, which can even occasionally be lower than rates on non-guaranteed loans. In addition, the SBA does not allow banks to charge commitment or prepayment fees on loans under 15 years.