Which is Better? SBA Loan vs. Line of Credit

Which is Better? SBA Loan vs. Line of Credit

When it’s time to look into financing for your business, there are many options to choose from to fit your needs. Two popular options for businesses today include a Small Business Administration (SBA) Loan and a revolving line of credit. Here we outline the differences to help you decide what works best for your financing needs.

What are SBA loans?

SBA loans are long-term loans partially guaranteed or funded by the government. Unlike conventional term loans, SBA loans offer business owners the opportunity to take advantage of lower down payments and favorable terms while removing some of the barriers of traditional financing options. These loans can be used to launch or expand your business or franchise, finance or boost permanent working capital, purchase new equipment and more. The SBA does offer lines of credit as well. Common types of SBA loans include:

  • SBA 7(A): For borrowers needing to expand business through real estate or business acquisition, or to manage cash flow on loans up to $5,000,000.
  • SBA 504: This is a great option for borrowers planning to expand a business through real estate or building acquisition or construction.
  • SBA Express: For borrowers needing up to $350,000 to expand, purchase equipment or another business, or simply help manage cash flow.

What is a revolving line of credit?

A type of financing you can get from your local bank, a revolving line of credit allows you to borrow a predetermined amount, however, they tend to come with higher credit limits, making it a better alternative for when needing cash for larger purchases. It’s also different from a business loan in that you can access cash whenever you need it or as expenses come up. It’s important to note that lines of credit come with draw periods where you can access the line as often as you like. During the draw period, your minimum monthly payments only account for the interest you need to pay. Once the draw period ends, your bank sets up an installment repayment plan typically set over three to five years.

Which one is right for your business?

An SBA Loan is a great option for businesses just starting out or for those having some struggles being approved for traditional financing. Meanwhile, a revolving line of credit is probably better for businesses that are a little more stable and need some help managing cash flow during the slower season or want to use it as an emergency fund.

Interested in an SBA loan or a revolving line of credit? Union Savings Bank offers both to local businesses in Western Connecticut. Not only do we offer a variety of loans at competitive rates, but we’ll work with you one-on-one to build a customized solution based on your individual business needs. And if you qualify, we can process your loan request quickly.

Call us at 866.650.0720 or visit one of our branches.