There are many reasons why a small business owner might choose SBA financing over traditional bank loans, but the primary reasons for choosing SBA loans for real estate have to do with flexibility, as well as return on investment. Unlike conventional bank financing, SBA loans do not require large down payments, which makes it much easier to keep cash on hand for business growth. Also with conventional small business loans, banks often require large amounts of collateral before they approve financing; SBA loans, on the other hand, do not require high levels of collateral, significantly increasing the prospect of loan approval for the small business.
Additionally, SBA real estate loans are paid off over a twenty-five-year period, with working capital and equipment financing generally repaid in up to ten years. Conventional bank small business loans typically have much shorter repayment terms, and often require a review of loan covenants and annual renewal of loan terms. As a small business owner, you can’t predict the state of the economy, the cycle of your business, or who manages and owns the bank at each periodic loan renewal. If the bank can’t renew your loan due to changes outside of your control, you could be responsible for a balloon balance.