10 Reasons You Don’t Qualify for an SBA Disaster Loan
Maintaining your business through the coronavirus crisis has likely led you to cut costs, revise sales projections, and potentially seek a loan to stay afloat. Luckily, the SBA has created a separate COVID-19 Disaster Loan with less stringent eligibility criteria and a streamlined application process to make more funds available for businesses.
But simplified doesn’t mean assured. If your SBA Economic Injury Disaster Loan application was denied, it doesn’t have to be the end. Let’s break down the top reasons that may have led to your application being denied and the steps you can take to secure funding on your second attempt.
Possible reasons for denial:
1. Your business is new
Most banks won’t issue SBA loans to new businesses. They require a couple of years in business or expect owners to have industry experience. For COVID-19 Disaster Loans, your business must be up and running long enough to display financials proving negative impact from the coronavirus. Submit reports showing at least 12 months of financial activity.
2. Low credit score
While credit score isn’t qualifying criteria for a Disaster Loan, lenders may still run a credit check. To qualify for a traditional SBA loan, a strong credit score of at least 600 is usually required. Try paying off some debt to improve your credit score.
3. Insufficient collateral
Banks want collateral to protect themselves in case of default. If you can’t collateralize a large portion of the loan amount, your application may be rejected.
4. High or low debt utilization
Overextending or underutilizing credit is a red flag for lenders. Pay off outstanding debt and establish a history of responsible debt management.
5. Poor cash flow
Lenders look at cash flow to determine eligibility. Provide cash flow statements to demonstrate the impact of COVID-19. Manage cash flow effectively to show your business’s health.
6. Risky industry
Certain industries may experience difficulty in securing a loan. Showcase strong financials and industry expertise to overcome this hurdle. Some businesses are excluded from SBA loans.
7. Request a larger loan
Lenders prioritize larger loans during an influx of applications. Ensure collateral and need justify the increased sum.
8. Incomplete application or missing documents
Double-check and include all necessary supporting documents in your application.
9. Violation of specific loan requirements
Check eligibility criteria and necessary documentation for the specific loan you’re applying for.
10. Inability to prove COVID-19 impact
Thoroughly explain how the crisis affected your business and provide supporting data.
What to do next:
1. Appeal the denial
Submit a request for reconsideration with supporting documents within 6 months of the original denial.
2. Verify lender requirements
Check if you missed any lender-specific requirements.
3. Prepare and update your application
Gather and update necessary documents. Focus on the reasons for denial and provide additional supporting documents.
Alternatives to reapplying:
Find an alternate lender
Explore other approved lenders that may be a better fit for your business.
Explore funding alternatives
Consider alternative financing options provided by fintech organizations.
Revisit your forecasts
Regularly revisit and revise your forecasts to identify cost-cutting solutions and improve future loan applications.
Strengthen your application using your business plan
Keep your business plan up to date with clear financial and operational documents to support your loan applications. Use tools like LivePlan for simplified business planning.
Additional Business Planning Resources:
– How to Write a Business Plan: Follow our step-by-step guide to simplify the business plan writing process.
– Download a Free Business Planning Template: Start writing your business plan using our investor-approved template.
– 500+ Sample Plan Library: Access our library of industry-based sample plans for guidance on writing your plan.
Hello!
I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.
Welcome to my digital space, where every piece of advice is a step closer to financial clarity and success!