SBA Loans vs. Unsecured Loans

When it comes to financing your small business or franchise, you have a variety of options. Two popular choices are SBA (Small Business Administration) loans and unsecured loans. Each option has its own set of advantages and disadvantages, and it’s important to under the differences between them in order to make an informed decision. Read on to compare and contrast five key categories to consider when considering a loan to fund your business.

Loan eligibility

SBA loans are available to startups and existing businesses. Most for-profit businesses and franchises qualify. Non-profits, gambling and religious businesses, as well as those with prior loan defaults or outstanding criminal records, may not be eligible.

Unsecured loans rely solely on the credit worthiness of the borrower, with outside cash flow and the borrower’s financial situation determining funding eligibility.

Loan amount and down payment

SBA loans generally offer higher loan amounts compared to Unsecured loans. An SBA 7(a) loan has a maximum loan amount of $5 million while an Unsecured loan is typically available in a lesser amount.

SBA loans often require a down payment of 10-20% whereas Unsecured loans do not.

Interest rates and fees

SBA loans are determined by the prime rate plus an additional percentage, generally resulting in a lower rate than Unsecured loans. Fees for an SBA loan are also relatively low. And, as of 10/1/2022, the SBA is waiving some fees up to $500,000.

Unsecured loans are not backed by the government like SBA loans, so the interest rate and fees are higher due to the greater amount of risk for the lender associated with these loans.

Collateral requirements

While not a requirement to issue the loan, SBA loans often secure available collateral from the borrower to secure the loan. Available collateral could be in the form of real estate, equipment or other business assets held by the guarantor or the business. The lender can claim this collateral in the event of default.

Unsecured loans don’t require collateral, making them an attractive option for some borrowers.

Approval process

SBA loans have a more extensive application process and can take longer to process than Unsecured loans. The SBA loan approval process includes providing detailed financial and business documentation, and a formal review by the bank, which can take weeks to months. On the other hand, an Unsecured loan have a quicker approval process and can be approved within a few days or weeks. Each lender has different processing times, and the timeline fr approval ultimately depends on the completeness and accuracy of the loan application.

Which loan is right for you?

Tenet Financial Group is dedicated to helping our clients navigate the lending process and find the best solution for their unique situations, whether that be an SBA loan and Unsecured loan or any other type of funding, such as a 401(k) Rollover or Equipment Funding. Our commitment to honest and transparent guidance is practiced with every client, and we’d love to assist you too. Fill out a Contact Form on any page of our website and we’ll reach out to discuss your needs.