As the technology grows rapidly more and more Businesses are being started and finance is the blood of any business to grow business financing is very important, nowadays entrepreneurs have a growing number of options to consider and determining and selecting the lender is bit difficult because of some of its advantages and disadvantages.

But there are two lending options which continuously considers as “best bank loans” are bank loans for business and SBA loans. As they are the lowest cost options available, and also offer the better flexible repayment terms, but sometimes also become hard for some businesses to qualify for getting a loan

Let’s compare SBA vs. business loans based on some common factors and which is right for your specific business needs

The basic difference between a SBA loan and Business loan is SBA loan is partially guaranteed by the government.

SBA LOANS

Requirements

To qualify for SBA loan, one must operate a small but a profitable business which engaged or having territories in the U.S and the owner also needs to have a decent equity invested in the business and also having other alternatives financial resources including personal assets before applying for loan.

Collateral

For getting a SBA loan of under $350,000, you don’t need  to require personal collateral to secure the loan. It means you can secure a SBA loan without risking your personal assets but regardless of all collateral requirements, all owners with 20% or more stake in the business or any key management person must provide personal guarantees.

Credit score

SBA loans also require good credit score, those applicants with bad credit score could be rejected or fail to get loan, which includes business credit cards or micro-loans these can help small business build business credit score

Specifically, SBA lenders check FICO SBSS score for loans of $350,000 or less  in the 7(a) program. You must have a score of not less than 140(out of 300) to pass the SBA pre-screen, but consider credit score of 160 to be safe.

Cash flow

Cash flow is one of the key parameter that any SBA lender will review. Like with traditional bank loans, having solid cash flow numbers is crucial while applying for an SBA loan. Business loan, SBA loan also demands a solid cash flow, if your cash flow is not good or not steady then you should look for some other options.

Business Loan

Collateral

Collateral refers to the tangible assets that are owned by the business owner. Collateral can be equipment, inventory, invoices  and real estate etc. If you fail to pay the loan, the bank can seize and sell this asset in order to get their money back. We can also say, the collateral acts as a security and giving relief to the bank’s concern of losing money.

Credit Score

For getting a business loan the better your credit score, the more likely you’ll get a low rate on a loan. In most cases, you’ll need a credit score of at least 600 to acquire a business loan.

Cash flow

Cash flow is an important factor to any successful business. Cash flow can  either make or break your business. A steady stream of cash shows lenders that you’re capable of sustaining the loan payments. It’s a representation of your business’ health.

Conclusion

Both SBA loans and conventional loan are lowest cost financing options available to businesses but applying for both loan is a lengthy process and also these aren’t easiest financing options that can be approved but if you are considering it you need to be ready with documents and business related Information  to make the application process as smooth as possible and also be prepared to wait.