10 Pros & Cons of SBA Loans Every Business Owner Should Know

Two business owners reviewing SBA loan documents.

As a business owner, you may be considering an SBA loan to help finance your operational needs. But before you make a decision, it’s important to understand its pros and cons and how it works. In this post, we’ll explore 10 key considerations that every business owner should know about SBA loans. By reviewing the pros and cons of SBA loans, you’ll have a better idea of whether this financing product is right for your business.

What Is an SBA Loan?

The Small Business Administration (SBA) is a government agency that provides support to small businesses through loans and guarantees. SBA loans are made by commercial banks and other lenders but are partially guaranteed by the SBA. This guarantee makes it easier for small businesses to get approved for financing.

Pros and Cons of SBA Loans

There are several different types of SBA loans, each with its own set of pros and cons. The most common include:

7(a) Loan Program

The 7(a) loan program is the SBA’s flagship loan product. It can be used for a wide range of purposes, including working capital, equipment purchases, real estate acquisition, and business expansion. 7(a) loans are typically available in amounts up to $5 million and have a repayment term of up to 10 years.

7(a) Loans 



  • Can get a loan with no or low collateral.
  • Wide range of uses: The 7(a) loan can be used for a variety of business purposes.
  • Available in variable or fixed interest rates.
  • Long approval time: 2 to 3 months.
  • Limited availability: Not all businesses are eligible for a 7(a) loan.
  • Restrictions on use: The 7(a) loan can only be used for certain purposes, such as working capital, equipment purchases, and real estate acquisition.


504 Loan Program

The 504 loan program is designed for businesses that want to purchase real estate or equipment. It provides long-term, fixed-rate financing at below-market interest rates. Loans are available in amounts up to $5 million with repayment terms of up to 20 years.

504 Loans 



  • Low interest rates: The current interest rate for 504 loans is around 3% of the debt.
  • Fixed interest rates: Your interest rate will not change over the life of the loan.
  • Long repayment terms: Loans are available in terms of up to 20 years.
  • Limited availability: Not all businesses are eligible for a 504 loan.
  • Restrictions on use: The 504 loan can only be used for certain purposes, such as investing in rental real estate, working capital, and debt repayment.


Disaster Relief Loans

The SBA offers disaster relief loans to businesses that have been affected by a natural disaster. These loans offer low interest rates and relaxed eligibility requirements. Let’s look at the SBA disaster loan pros and cons.

Disaster Relief Loans 



  • Can take care of losses not covered by insurance.
  • Relaxed eligibility requirements: You don’t have to meet the same eligibility requirements as you do for other SBA loans.

  • Limited availability: Not all businesses are eligible for an SBA disaster relief loan; only for declared disasters.
  • Restrictions on use: The loan can only be used for certain purposes, such as working capital, equipment purchases, and real estate acquisition.


Key Considerations When Weighing SBA Loan Pros & Cons

Before applying for an SBA loan, business owners should carefully weigh the pros and cons of each product. Here are 10 key considerations to keep in mind along with the advantages and disadvantages of SBA loans:

  1. Approval process: The SBA’s loan approval process can be lengthy and meticulous, often taking several months from start to finish.
  2. Liability: Business owners are personally responsible for repaying SBA loans. This means that if you default on your loan, the SBA can come after your personal assets to satisfy the debt.
  3. Interest rates: Interest rates on SBA loans are generally lower than those for traditional bank loans. However, they are typically higher than rates for government-backed loans such as the 504 program.
  4. Fees: There are a number of fees associated with SBA loans, including an application fee, guarantee fee, and closing costs. These fees can add up quickly, so it’s important to factor them into your decision.
  5. Repayment terms: The repayment terms for SBA loans vary depending on the product. Some loans, such as the 7(a) program, have flexible repayment terms of up to 10 years. Others, like the 504 program, have fixed repayment terms of 20 years.
  6. Collateral: Most SBA loans require collateral, which means that if you default on your loan, the lender can seize your assets to repay the debt.
  7. Credit score: You’ll need a strong credit score to qualify for an SBA loan. A score of 680 or higher is generally considered good, while a score of 700 or higher is excellent.
  8. Time in business: The SBA typically requires businesses to be in operation for at least two years before they are eligible for a loan.
  9. Size of business: The SBA has different eligibility requirements for businesses of different sizes. Generally, businesses with fewer than 500 employees are eligible for SBA loans.
  10. Use of funds: The SBA has strict guidelines on how loan proceeds can be used. For example, the 504 program can only be used for certain types of equipment or real estate purchases.

Need An SBA Loan Alternative? LendThrive Can Help

If you’re not eligible for an SBA loan or don’t want to deal with the hassle, there are several alternative financing products available, such as the fixed rate business loans offered by LendThrive.

Fixed rate business loans from LendThrive offer several advantages over SBA loans, including:

  • No application fee
  • No collateral required
  • Fast and easy approval process
  • Flexible repayment terms

To learn more about LendThrive’s fixed rate business loans, how they can benefit your business, and other extra perks, visit our website or give us a call today. Don’t wait to secure the funding you need to expand your business!

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