What are the Pros and Cons of SBA Loans For Small Businesses?

Small businesses have been vital to the health of our economy for generations. They create jobs consumers access to a variety of goods and services, and in many cases, even change entire industries with their innovations. But starting any business requires capital — and small business owners often don’t have deep pockets or easy access to traditional sources of financing like banks. That’s why the Small Business Administration (SBA) offers special loan programs that can provide an important source of funding for these entrepreneurs.

But while SBA loans offer a number of benefits over other forms of financing, they do have some drawbacks too. Before you decide whether this type of loan is right for your business, it can be helpful to consider both the cons of SBA loans.

Pros of SBA Loans:

– Low Interest Rates: The interest rates on SBA loans are typically much lower than those associated with other types of financing, such as lines of credit or personal loans. This can save small business owners thousands of dollars in interest costs over the life of the loan.

– Long Terms: Many traditional lenders offer repayment terms that run no more than five years; by comparison, most SBA loans come with terms stretching up to 25 years — giving you far longer to repay the money you borrowed and keep your cash flow healthy.

– Flexible Collateral Requirements: Small businesses often lack enough collateral to secure a loan from banks or other traditional lenders. With an SBA loan, the collateral requirements tend to be much more flexible — meaning you may not need to put up as much of your own property to guarantee repayment.

Cons of SBA Loans:

– Long Application Process: Applying for an SBA loan can take anywhere from two weeks up to several months depending on the size and complexity of the loan. This is significantly longer than applying for a personal loan or even a business line of credit can be approved in just a few days.

– Restrictive Eligibility Requirements: In order to qualify for an SBA loan, borrowers must meet certain criteria set forth by the government, including having satisfactory credit scores and being current on their taxes. Small business owners who don’t meet these requirements will be unable to access SBA loan funds.

– Added Paperwork: In addition to the lengthy application process, applicants SBA loan fill out a considerable amount of paperwork and provide detailed personal financial information — all of which can add time and cost to the borrowing process.


When it comes to financing your small business, taking out an SBA loan can be a great option — but it isn’t right for everyone. By weighing the pros and cons of this type of loan, you can make an informed decision about whether it is the best choice for your needs.