How to Compare SBA Term Sheets: What Really Matters Before You Choose a Lender

Receiving multiple SBA term sheets is a great position to be in - and it’s exactly the outcome we aim for at SBA Source. Our goal is to give borrowers real options, not just a single take-it-or-leave-it offer. But once those offers arrive, the next challenge begins: how do you actually compare them?

Not all term sheets are created equal. The lowest rate isn’t always the best deal, and the fastest lender may not be the most flexible long-term. Here’s a complete framework for evaluating your options with clarity and confidence.

1. Equity Injection: How Much Cash You Must Bring In

Your equity injection is the upfront cash you are required to contribute to the project.

Key questions to evaluate:

• What is the required equity percentage?

• What is the total dollar amount?

• Is any portion allowed to come from a gift?

A difference of even 5 - 10 percentage points in equity can mean tens or hundreds of thousands of dollars out of pocket. Lower equity often improves cash flexibility, but it can sometimes come with higher rates or fees - so it must be evaluated in context.

2. Interest Rate: Variable vs. Fixed, and How It Resets

Interest rate comparisons go far beyond the headline number.

You should look at:

• Is the rate variable or fixed?

• What is the spread above Prime?

• How often does the rate reset (monthly, quarterly, annually)?

For example: Prime + 2.75% vs. Prime + 3.00% may seem small, but over 10 years it can materially impact total interest paid.

3. Fees: What You Pay at Closing and Over Time

Fees can vary between lenders and materially impact the true cost of capital.

Common fees to review:

• SBA guarantee fee: Typically 3% of the guaranteed portion of the loan (75%)

• Loan amount * 75% * 3%

• Bank origination or packaging fees: Generally consistent across lenders

• Third-party report fees: Appraisals, environmental reports, background checks - typically paid at closing

Important considerations:

• Which fees are financed vs. paid out of pocket?

• When are they due?

• Which fees are non-refundable?
  

Even if two offers have similar interest rates, differences in fees can significantly impact the total cost of the loan.

4. Interest-Only Periods & Payment Structure

Most SBA loans include an interest-only period during buildout or ramp-up. While these can go up to 12 months, we typically see 4-6 months.

Some lenders may also offer:

• Interest reserves

• Delayed principal payments

These features help protect early cash flow and reduce pressure before the business is fully operational.

What to compare:

• Length of interest-only period

• Whether interest is paid or capitalized

• When full payments begin

There is often flexibility here, so be sure to ask your lender. Since SBA Source runs a competitive process, lenders are typically already optimizing rate and equity - making structure a key area to refine.

5. Collateral Requirements

For SBA loans over $350,000, lenders are generally required to take available collateral to help secure the loan. However, they often have flexibility in how that collateral is structured.

This may include:

• Liens on business assets

• Personal or investment real estate

• Secondary liens on additional properties

In some cases, lenders may allow flexibility - for example, placing a lien on a rental property instead of your primary residence.

Key questions to compare:

• What collateral is being taken?

• Is real estate required, and if so, which property?

• Is the loan cross-collateralized?

• What happens if you sell the property later?

• Are personal assets required in one offer but not another?
  
  

Collateral is not just a yes-or-no decision - it can impact your long-term flexibility and should be evaluated carefully across offers.

The Bottom Line

At SBA Source, we run a competitive process to deliver multiple term sheets, clear side-by-side comparisons, and insight into how each lender operates.

When comparing offers, look beyond a single number- evaluate equity, rates, fees, structure, collateral, and overall execution. Lender experience and ability to close can matter just as much as the terms themselves - an offer that looks best on paper may carry more risk in practice.

The best term sheet is the one that fits your business, cash flow, and risk tolerance - not just the lowest advertised rate. If you have any questions, we’re here to help.