Most all small business owners consider a variety of funding and credit options at one time or another. If you run a small business, you may have already heard about or considered Small Business Administration loans, also known as SBA loans.

For many reasons, SBA loans are a great choice for some businesses. To help you decide if they’re the right choice for you, we’ve collected the benefits, drawbacks, application information, and other things you may need to think about when considering an SBA loan.

What is an SBA loan?

Small Business Administration loan programs are drafted in agreement between lenders and SBA agencies. Borrowers use these programs when looking for lenders for their small businesses. Lenders appreciate SBA loan programs because the SBA shoulders some of the risk for the lender by guaranteeing a portion of the loan amount. Because of that guarantee, lenders are able to offer more flexible payment terms and lower interest rates than most small businesses would otherwise be able to get.

SBA loans and SBA Express loans are a useful option for many SMBs, but they do have several drawbacks that you should consider before applying. Here are some to think about before you make a decision.

Benefits of SBA loans

Competitive rates

Per federal rules, participating lenders base SBA loan interest rates on the prime rate plus a markup rate known as the spread.

Note that the APR on a loan is different from the interest rate. The APR is a percentage that includes all loan fees in addition to the interest rate.

APRs can vary substantially between SBA lenders and non-SBA lenders. For example, an online lender that specializes in SBA loans may cap its APR around 10%, while major online small-business lenders that don't offer SBA loans have loans with APRs as high as 99%.

Low fees

Fees for SBA loans usually consist of an upfront guarantee fee, based on the loan amount and the maturity of the loan, and a yearly service fee, based on the guaranteed portion of the outstanding balance. The SBA reassesses its fee structure each year.

Fees are SBA loans are currently being waived.

Longer terms

Another perk of SBA loans is that you get more time to repay them, which means you’ll have more money available for other business needs. The loan term will depend on how you plan to use the money. The current maximum maturities are:

Working capital or inventory loan: 10 years.

Equipment: 10 years.

Real estate: 25 years.