SBA Loan vs. Term Loan: Which One Should You Apply For First?

By the Lady's First Group Team · Updated September 2026

The question isn't really which loan is better—it's which one matches where your business is right now. Timing your application wrong costs you money and delays growth.

The Core Difference (and Why It Matters for Your Timeline)

An SBA loan is government-backed, which means the lender has less risk. A term loan is a straight-up bank deal—you borrow, you pay it back, no government safety net. That difference shows up immediately in how fast each moves and what they cost.

SBA loans take 60–90 days to fund, sometimes longer. Term loans can close in 2–4 weeks. SBA rates sit around 8–12% depending on the program. Term loans typically run 10–15%, but they move faster. If you're burning cash right now, speed wins. If you're playing the long game and can wait, the SBA rate saves you real money over a 7- or 10-year repayment period.

Go for the Term Loan First If You're in a Time Crunch

You have a signed customer contract that starts in 60 days. You need inventory or equipment immediately. A client just asked you to take on a six-figure project but you need working capital to staff it up and deliver. These situations demand speed, and that's where a term loan wins.

Traditional lenders (banks, credit unions, online lenders) move faster because the application is simpler. They're looking at your credit, your revenue, maybe some basic tax returns. No government paperwork, no SBA review process, no waiting for the Small Business Administration to sign off. You get a decision in days, not weeks.

The catch: you'll pay a higher rate. But that higher cost is temporary—you're solving an immediate need. Once you've stabilized cash flow or grown revenue, you can refinance into an SBA loan later to lock in that lower rate for the remaining balance.

Go for the SBA Loan First If You Have Runway

You're not in crisis mode. You're planning ahead for growth next year. Your cash flow is decent but tight. You've got 3–4 months to make a move. An SBA loan makes sense because you'll save $10K–$40K+ in interest over the loan term, depending on the amount and payoff schedule.

SBA loans also come with longer repayment terms (up to 10 years for working capital, 25 years for equipment or real estate). That spreads payments out, which keeps monthly obligations low—exactly what matters when every dollar matters for a small operation. The approval odds are also slightly better if your credit or cash flow isn't picture-perfect, because SBA standards are a bit more forgiving than conventional lenders.

The trade-off is patience. You need to have your books organized, ideally 2 years of tax returns, a solid business plan if you're newer, and time to sit with the SBA's process. If you can't wait, don't force it.

The Hybrid Strategy: Start with Term, Refinance to SBA

This is how savvy women owners do it. You apply for a term loan to solve the immediate problem—hiring, inventory, a big opportunity that can't wait. You get funded in 3 weeks. Then, in 6–12 months when your revenue bump shows up in new tax returns and you've stabilized, you refinance that term loan into an SBA loan at the lower rate.

The SBA approves refinancing if your business has grown or stabilized since the original loan. You'll pay off the term loan with SBA proceeds, drop your interest rate 2–4 percentage points, extend the term, and lower your payment. On a $100K loan, that could free up $300–$500 per month—real cash.

This only works if you stay disciplined: don't treat the term loan like it's permanent. View it as temporary bridge financing. Get your numbers in order, grow the business, and execute the refinance when the timing is right.

Red Flags That Should Change Your Timeline

Bad credit score (below 650): SBA loans have wiggle room here; term loans are tighter. If your personal credit took a hit, go SBA—it's your better shot.

Less than 2 years in business: SBA requires 2 years of tax returns for most programs. If you're newer, you're headed for a term loan or a startup SBA loan (which has different rules and longer timelines).

Tight debt-to-income ratio: You're already carrying personal debt (car loan, mortgage, student loans). SBA is more flexible with existing debt; term lenders want to see lower total debt obligations.

No business tax returns yet: If you just started and haven't filed a business return, a term lender will move on quickly. SBA programs exist for startups but require collateral or a strong guarantor.

The Math: When Does Waiting for SBA Actually Save Money?

Let's say you need $100K. A term loan comes at 12%, SBA at 9%, both over 7 years.

Term loan: ~$1,560/month, $131K total interest.

SBA loan: ~$1,320/month, $111K total interest.

The difference is $240/month, $20K over the life of the loan. If it takes 90 days longer to close the SBA loan and you're paying $1,560/month in the meantime, that's roughly $3,900 in extra costs just for waiting. But once you refinance that term loan to SBA (if you can) or if the SBA just closes slower, you win the interest game fast—breaking even in month 8 and pulling ahead for years.

Where waiting doesn't pay: if you're on the hook for time-sensitive revenue. If delaying the loan delays a $50K project, no interest savings justify that risk.

Frequently asked questions

Can I apply for both a term loan and an SBA loan at the same time?

Technically yes, but most lenders will ask why you're double-applying. If you tell them you're exploring options, they'll likely want you to pick one and commit. The exception is if you're applying to different lenders (a bank for SBA and a credit union for term), where they won't know. Better move: pick the one that fits your timeline, close it, and revisit refinancing in 6–12 months.

If I get denied for an SBA loan, can I go straight to a term loan with the same lender?

Sometimes. An SBA denial doesn't automatically torpedo you with a conventional lender, because their standards differ. But if the SBA said no because of low revenue or weak credit, a traditional term lender will likely say the same thing. Better bet: ask the SBA lender why you were denied, fix that specific issue (more documentation, higher credit score, stronger co-signer), then apply again. If it's a fundamental problem, a different lender might see it differently.

Do multiple loan applications hurt my credit?

Hard inquiries (when a lender pulls your credit) count as separate hits on your score. But credit bureaus treat multiple inquiries for the same type of loan (like shopping for business loans) as a single inquiry if they happen within 14–45 days, depending on the bureau. So applying to 2–3 lenders in a week is safer than spreading applications over two months.

What if I don't qualify for an SBA loan at all?

Some businesses can't use SBA programs (nonprofits, ventures involving gambling or weapons, etc.). If that's you, term loans are your lane. If it's a credit or income issue, you might qualify for a smaller SBA loan or a different program (microloan, for example, tops out at $50K but has looser credit standards). Talk to an SBA lender directly—the reason for rejection often has a workaround.

Lady's First Group is a business-funding marketplace, not a lender. Products and terms vary by qualification.