Is a conventional term loan or SBA 7(a) cheaper?

On rate alone, conventional term loans and SBA 7(a) are similar (both ~9-12% in 2026). But SBA 7(a) terms run 10 years vs conventional 5-7 years, so the SBA monthly payment is materially lower. Total interest paid over the SBA loan is higher because it's outstanding longer; monthly cash flow is much easier.

Why pick conventional over SBA 7(a)?

Speed (3-6 weeks vs 4-10), simpler paperwork (no SBA forms), lower SBA fees, and existing bank relationships. For amounts under $150K or borrowers with strong bank relationships, conventional often closes faster and cheaper in fees.

What credit score do I need?

Conventional term loans typically require 680-720+ FICO and 2-3 years in business. SBA 7(a) typically requires 660-680+ and 2 years. Borderline credit borrowers often qualify for SBA but not conventional.

How does the SBA guarantee fee work?

SBA charges the lender a one-time guarantee fee that is passed to the borrower. As of 2026, fees run 0% on loans under $1M and 1.5-3.5% on amounts above. Typically rolled into the loan. Conventional has no SBA fee but may have an origination fee (0.5-1.5%).

Can I refinance from one to the other?

Yes — SBA 7(a) can refinance an existing conventional term loan if the SBA terms materially improve the borrower's position (typically 10%+ payment reduction). Going the other way is rarer but possible.

Term Loan vs SBA 7(a) | Cost & Speed

Quick answer

Conventional term loan: 5-7 year term, 8-13% APR, 3-6 week close, no SBA forms. Best for established borrowers with bank relationships and amounts under $150K. SBA 7(a): 10-year amortization, prime + 2.5-3% (≈9.5-11% in 2026), 4-10 week close, full SBA paperwork. The longer SBA term cuts monthly payment by 30-40% vs conventional on the same dollars. SBA wins on cash flow; conventional wins on speed and simpler closing. Most borrowers shop both in parallel.

Compare term loan and SBA offers →

The conventional-term-loan-vs-SBA-7(a) decision is the most common question for established small businesses with $150K-$5M of borrowing need. Both products fund the same uses (working capital, equipment, expansion, debt refi) but with very different term length and processing friction. This guide compares them on what actually drives the decision: monthly cash flow, total cost, and time-to-close. For broader context see business term loans and SBA loans.

Side-by-Side

Dimension	Conventional Term Loan	SBA 7(a)
Loan amount	$25K-$5M+	$50K-$5M
Rate	8-13% APR	9.5-11% (prime + 2.5-3%)
Term	3-7 years (typical 5)	7-25 years (typical 10)
Speed	3-6 weeks	4-10 weeks
Min FICO	680-720+	660-680+
Min TIB	2-3 years	2 years
SBA fee	None	0% under $1M; 1.5-3.5% above
Origination	0.5-1.5%	0.5-2.5% (SBA-allowed)
Personal guarantee	Almost always	Required (20%+ owners)
Best for	Speed, smaller loans, bank relationship	Long term, lower payment, marginal credit

When Conventional Term Loan Wins

Existing bank relationship — your business banker knows your file, can price competitively, no SBA forms needed
Amounts under $150K — SBA processing overhead is disproportionate; conventional is faster and cheaper
Speed-sensitive deals — closing in 3-4 weeks vs 6-10 makes a real difference
Strong credit (720+) and clean financials — conventional rates can match or beat SBA
Plan to refinance or pay off in 3-5 years — the shorter term means less total interest

When SBA 7(a) Wins

Cash-flow constraint — the 10-year SBA payment is 30-40% lower per month than a 5-year conventional on the same dollars
Borderline credit (660-680) — conventional may decline; SBA approves with the same file
Acquisition deals — SBA 7(a) finances goodwill and intangibles up to higher limits than conventional
Newer businesses — 2 years of operating history fits SBA; conventional often wants 3+
Long hold horizon — intend to amortize over 10 years rather than refinance

Real Cost Example: $250K Loan

Same $250K, two structures:

Conventional: $250K, 5-year term, 11% APR, 1.5% origination ($3,750). Monthly P&I: $5,435. Total over 5 years: $326,100. Total interest + fees: ~$80K.
SBA 7(a): $250K, 10-year term, prime + 2.75% ≈10.25%, 0% SBA fee under $1M, 1.5% lender origination ($3,750). Monthly P&I: $3,338. Total over 10 years: $400,560. Total interest + fees: ~$155K.
Cash flow difference: SBA monthly is $2,097 lower — that's $25K/year of operating capital that doesn't go to debt service.
Total cost difference: Conventional saves ~$75K over the life of the loan.

If $25K/year of cash flow is the constraint, SBA wins. If total interest paid is the constraint and you can support the higher monthly payment, conventional wins.

Next Step

Define the loan amount and timeline, then run both quotes. Compare term loan and SBA offers — one application reaches both bank and SBA lenders.