10 Reasons You Don t Qualify for an SBA Disaster Loan

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

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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.

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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.

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