If you have credit troubles, it can be frustrating to try and get approved for a small business loan. You may have tried applying for an SBA loan only to find out that it didn’t go through. You may wonder why your SBA loan was denied, or what you should do next.
We will help you answer these important questions, so you know what to do next time you apply for an SBA loan.
What is an SBA Loan?
Understanding SBA loans is the first step in learning to apply. The U.S. Small Business Administration (SBA) offers several loan programs that support small businesses and entrepreneurs by providing financing to those who may not qualify for a traditional loan on their own.
SBA loans have longer repayment terms than conventional bank loans. They serve one purpose – to help small business owners start, grow, and succeed. In the event of emergencies, you can also apply for SBA disaster loans.
SBA loans are good for small businesses. They have some great perks. But the approval process is hard and disappointing. If your SBA loan gets denied, you can appeal the decision.
SBA Loan Denied- Now What?
Receiving a denial letter from a lender can be discouraging. However, getting back on track relatively quickly is possible. First, you must determine the reason for your SBA loan application denial.
If the denial was due to bad credit or a lack of collateral, you could address these issues. If the problem is poor cash flow, poor business management skills, or other more systemic issues, it may be time to consult with a business advisor or accountant to address them
Here is what to do after your SBA loan application falls through:
Find out why
If you didn’t get the loan you applied for, ask why. It’s important to know why you didn’t get the loan so that you can plan.
After you get the rejection letter, you should call the bank to find out why. Some of the reasons can be that you don’t have enough experience or lack enough collateral. You can improve these areas to get approved the next time you apply.
Appeal to the SBA
If you want to contest a decision, you can ask the SBA to review it. Or you can re-examine your file and present more evidence. The best evidence should help you contest the outcome and ask the SBA to reconsider its decision.
But if you do something that makes you ineligible for the small business loan, you can’t change that by asking the government to reconsider.
However, if you discover that your credit report contains errors, you may have a cause for requesting a reconsideration.
Applicants interested in submitting a reconsideration request should summarize the reason for denial and include why the SBA should reconsider the request.
Wait and Reapply
You can’t get an SBA loan if you don’t have any collateral, credit history, or money. If this is the case, wait 90 days and apply again. You can also try to improve your personal and business credit.
What Percentage Of SBA Loans Get Denied?
Banks are for lending money to people and businesses. Small banks usually lend money to small businesses and people. They lend less money than big banks do.
Big banks lend money to big companies, but they don’t lend much money to small businesses. That is why 1 in every 5 SBA loan applications fails.
If My SBA Loan Didn’t Go Through, Can I Apply Again?
If you don’t get the loan the first time you apply, you can try again. But you have to wait for a while after your first application.
It is advisable to take some time to improve your business and credit history before applying again. You are able to reapply again after 90 days.
Reasons for My SBA Loan Rejection
Your loan application may not be successful for various reasons, but some of the more common ones are as follows:
- You or your business has a low overall credit score
- You lack adequate collateral or assets to secure the loan
- You already have outstanding debts.
Experts also advise watching out for the flowing SBA red flags:
Insufficient capital means loan applicants may fail to service loan repayments.
Negative credit history
Bankruptcy, liens, and past government defaults reduce your chances of getting the loan.
You won’t get the loan if you work in an industry that the Small Business Administration does not lend to.
Alternative Options If You Don’t Get an SBA Loan
If your SBA loan doesn’t succeed, you have other options. Here are some alternatives that you may find helpful.
Hard Money Loans
Suppose you’re looking to buy a piece of commercial real estate. A short-term hard money loan might be a good option. Credit score and income are not important considerations. Your real estate collateral value is the most important consideration for lenders.
Online lenders can help you get money for your business. The biggest caveat is that they might charge you a higher interest rate than a bank. Before you borrow from an online lender, check their fees. Each online lender has its standards.
Business Credit Cards
If you are a small business owner and want to build business credit, you can apply for a business credit card. Businesses can have credit card accounts that are separate from their personal credit.
If a small business loan fails, you can try invoice financing. Invoice financing allows you to access working capital to pay pending invoices.
Invoice financing can help you cover daily expenses like inventory and supplies. In contrast to SBA loans, only B2B companies are eligible for these loans.
Fee-based lenders will let you borrow money for invoices due in 30 to 90 days. Loans against invoices are usually fairly low-interest. If you have bad credit or no business credit history, you are unlikely to qualify for invoice financing.
Didn’t Get Your SBA Loan?
SBA loans are useful because they can help pay for many different things like buying equipment or making repairs to the business premises.
If your SBA loan gets declined, you can reapply or simply explore alternative financing options. Learn how to apply for an SBA loan so you can ensure all the necessary information is included in your application. Before that, it’s critical to invest in understanding your business’s financial position and why your application failed. You can always seek help from professional financial experts.
An Outsourced CEO and expert witness, Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting, turnaround and brokerage firm specializing in the gym and sports industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars, webinars and workshops across the globe on the practical skills required to successfully overcome obscurity, improve sales, build teamwork and market fitness programs and products. Visit his Web site at: www.fmconsulting.net or www.youtube.com/gymconsultant.