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Home / Guides / SBA loan or bank loan: how to choose

SBA loan or bank loan: how to choose

Janover Capital editorial team · Checked November 9, 2026

Short answer

A 7(a) loan comes from a lender, such as a bank, with a partial SBA guaranty. SBA rules make an applicant who meets the lender's conventional standards ineligible for it (SOP 50 10 8.1, Sec. A, Ch. 1, Para. H).

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How the two differ

SBA does not make 7(a) loans directly to borrowers. It guarantees part of a lender's loan (SBA, 7(a) loans). The lender makes and services the loan. On SBA Express, the lender makes the credit decision without prior SBA review.

On a 7(a) loan the guarantee is 85% on loans of $150,000 or less and 75% on larger loans. On SBA Express it is 50% (SOP 50 10 8.1, App. 16). So the real choice is between an SBA-guaranteed loan and a conventional loan from a lender.

In the Federal Reserve Banks' 2026 survey, 20% of applicants for a loan, line or merchant cash advance sought an SBA loan or line. The survey is a convenience sample.

The eligibility test that comes first

SBA's credit-elsewhere rule decides whether you qualify. The lender must certify that you cannot get some or all of the money on reasonable terms without SBA's help. If your cash flow and collateralProperty a lender can take and sell if a loan is not repaid. meet its conventional standards, the project is not eligible for an SBA loan (SOP 50 10 8.1, Sec. A, Ch. 1, Para. H).

SBA lists acceptable reasons:

  • You need a longer maturity than the lender's policy allows.
  • The loan exceeds the lender's limit for one customer.
  • The collateral does not meet the lender's policy.
  • The lender's policy does not allow loans to new businesses, such as one open two years or less, or to your industry.

A credit score below the lender's conventional policy cannot be the only reason.

Side by side

  • Amount. A 7(a) loan reaches $5,000,000. SBA Express reaches $500,000. A conventional lender sets its own limits.
  • Term. SBA working capital runs up to 10 years, and real estate up to 25 years, plus any reasonable construction or renovation period (App. 17, Para. A). A conventional lender sets its own terms.
  • Rate. SBA caps the variable rate at Prime plus 3.0 to 6.5 percentage points, depending on loan size (13 CFR 120.214(d)). Conventional pricing is the lender's.
  • Upfront fee. SBA's guaranty fee is 3% of the guaranteed portion on loans from $150,001 to $700,000, for approvals October 1, 2026 through September 30, 2027. The fee is 0% for loans of $700,000 or less to manufacturers (NAICS 31-33), listed food supply chain businesses and businesses in rural areas. The lender may pass the fee to you (Information Notice 5000-881797, pp. 1-2; Sec. A, Ch. 4, Para. C.1.a).
  • Annual fee. For these approvals, the lender pays SBA 0.55% of the outstanding guaranteed balance. It may not pass that fee to you.
  • Lender charges. A 7(a) lender may not charge commitment, origination, broker, referral and similar fees, points, prepayment fees and renewal fees (Sec. A, Ch. 4, Para. C.4).
  • Equity. A start-up 7(a) loan needs at least 10% of total project costs. SBA Express leaves equity to the lender's judgment.
  • Collateral. SBA says a loan request must not be declined solely because collateral is inadequate (App. 19, Para. A). The lender still follows SBA's collateral rules.
  • Guarantee. Each owner of 20% or more of the business gives an unlimited personal guaranty (Sec. A, Ch. 5, Para. A.1). Conventional lenders set their own rules. Of firms with debt in the Fed survey, 59% used a personal guarantee.

What it costs: one $250,000 loan, two ways

Suppose you borrow $250,000 and assume 9% a year with monthly payments in both cases. Real rates will differ. This isolates the effect of the term. It is an illustration, not a quote.

  • Conventional, 5 years. Payment: $5,189.59. Total paid: about $311,375. Interest: $61,375.
  • SBA 7(a), 10 years. Payment: $3,166.89. Total paid: about $380,027. Interest: $130,027.
  • SBA upfront fee. The guaranty on a loan over $150,000 is 75%. The guaranteed portion is $250,000 × 75% = $187,500. The fee on a loan this size is 3% of the guaranteed portion, so $187,500 × 3% = $5,625 if the lender passes it to you. A borrower who qualifies for the 0% waiver would owe no upfront fee.

The SBA term cuts the payment by $2,023 a month. It adds $68,652 of interest, plus the $5,625 fee if you owe it.

If you can afford the 5-year payment, the conventional loan costs less in total. If you cannot, the longer term may decide whether the project is affordable at all. Extra payments help either way. A 7(a) lender may not charge a prepayment fee, and SBA's own recoupment fee reaches only long maturities (13 CFR 120.223).

When an SBA loan is the better choice

  • The lender's policy will not give you the term you need, and the payment on a shorter term would strain cash flow.
  • Your collateral, industry or business age falls outside the lender's policy.
  • You want the rate cap and the ban on lender origination fees, points and prepayment fees.
  • You are buying a business or starting one, where SBA has specific equity rules and the conventional lender may not lend at all.

When a bank loan is the better choice

  • You meet the lender's conventional standards. SBA rules then make the SBA version unavailable.
  • You can afford a shorter term and want to avoid the extra interest and the guaranty fee.
  • You do not fit SBA's rules. Examples are ineligible business types and ownership and citizenship requirements (SOP 50 10 8.1, Sec. A, Ch. 1, Paras. E and F).
  • You want fewer forms and certifications. SBA adds its own paperwork on top of the lender's.

Questions to ask each lender

  • Do you offer both an SBA loan and a conventional loan for this need?
  • Which do you recommend, and why?
  • What is the total cost of each in dollars, with every fee included?
  • Is the rate fixed or variable, and what is the formula?
  • What do you need from me in each case, and who must guarantee the loan?
  • Who services the loan after closing?

Sources

  1. SBA, 7(a) loans (sba.gov, read November 9, 2026)
  2. Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (published March 2026)
  3. SOP 50 10 8.1, Sec. B, Ch. 2, Para. C.2 (Para. C begins p. 127)
  4. SOP 50 10 8.1, App. 16, Para. A.1 (p. 387)
  5. SOP 50 10 8.1, App. 16, Para. B.2 (Para. B begins p. 388)
  6. SOP 50 10 8.1, Sec. B, Ch. 1, Para. B.1 (Para. B begins p. 117); 13 CFR § 120.151
  7. SOP 50 10 8.1, Sec. B, Ch. 2, Para. B.1 (p. 126)
  8. SOP 50 10 8.1, App. 17, Para. A.1 (p. 390)
  9. SOP 50 10 8.1, App. 17, Para. A.3 (p. 390); 13 CFR § 120.212(c)
  10. 13 CFR § 120.214(d)
  11. SBA Information Notice 5000-881797, p. 2
  12. SBA Information Notice 5000-881797, p. 1 (Sept. 3, 2026)
  13. SBA Information Notice 5000-881797, p. 1
  14. SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.4 (Para. C begins p. 62)
  15. SOP 50 10 8.1, Sec. B, Ch. 1, Para. C (p. 118); Sec. B, Ch. 2, Para. C (p. 127)
  16. SOP 50 10 8.1, App. 19, Para. A (p. 404)
  17. SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.1 (p. 93); 13 CFR § 120.160(a)
  18. SOP 50 10 8.1, App. 16, Para. A.1 (p. 387); 13 CFR § 120.210
  19. SOP 50 10 8.1, Sec. A, Ch. 1, Para. H, Credit Not Available Elsewhere (p. 37)
  20. SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.1.a, Upfront Fee (Para. C begins p. 62)
  21. SOP 50 10 8.1, Sec. A, Ch. 1, Paras. E and F, Ineligible Businesses; Citizenship and Ownership (pp. 18, 28)
  22. SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.3, Subsidy Recoupment Fee (p. 70)

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