SBA Loan Denied? Here’s What to Do Next
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Having an application for an SBA loan denied can be a frustrating experience if you’re in need of financing. These small-business loans have low interest rates, long repayment terms and are partially guaranteed by the U.S. Small Business Administration — making them very competitive.
If you’ve been denied an SBA loan, you may be able to reapply or you can consider other financing options. Follow these steps to get started:
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
1. Find out why your SBA loan was denied
The SBA has a set of requirements that you’ll need to satisfy to qualify for a loan. You’ll also need to meet the business loan requirements laid out by your specific lender.
If your SBA loan application is denied, you should receive an explanation for the decision from your lender. If you don’t or have questions, you can contact your lender for more information.
There are a variety of reasons that you might be denied an SBA loan, including:
Credit
You will need to meet the SBA loan credit score requirements as set by your lender. Although the SBA doesn’t designate these requirements, your lender will likely want to see good credit. It’s helpful to have a personal credit score of 690 or higher.
For established businesses, the lender will also check your business credit score. In some cases, you’ll need to receive a score of 155 or higher (scores range from 0 to 300) on a FICO Small Business Scoring Service (SBSS) screening for your business credit.
Business size and industry
If your company doesn't meet the SBA’s definition of a small business, your application could be denied. Size requirements differ depending on the industry, but generally include the number of employees as well as average annual revenue.
You may also be denied if your business operates in an ineligible industry. Some of these include:
Nonprofits.
Financial institutions involved in lending (e.g. banks, factoring companies).
Businesses primarily engaged in political or lobbying activities.
Life insurance carriers.
Businesses whose principal activity is gambling.
Business operations and location
You must be a for-profit business, officially registered and operating legally, to get an SBA loan. You must also be physically located and doing business in the U.S. or its territories.
Finances
If you can’t adequately show your ability to repay the financing, your SBA loan application could be denied. It’s helpful to be able to show strong annual revenue and cash flow projections. Although not necessarily required, profitability may help your application.
Your lender will also consider how much existing debt you have. As a general rule, you’ll want to have a debt service coverage ratio (DSCR) — which compares your available operating income to your current debt obligations — of 1.15 or higher.
2. Consider reapplying.
The SBA requires prospective borrowers to wait 90 days from the denial notice before they can reapply. If you can wait three months, use the time to bolster your application in order to increase your chances of success.
In particular, you can:
Build your credit. A higher credit score may help you qualify for an SBA loan. To improve your credit, you can pay down or pay off debt, make debt payments more frequently and look for errors on your credit report and dispute them with the appropriate credit bureau.
Improve cash flow. A strong cash flow shows that you’ll be able to repay your loan. You can improve your cash flow by streamlining your billing and collecting processes, negotiating better terms with suppliers and optimizing inventory turnover.
Reduce existing debts. Although it can be difficult to pay down your existing debts, doing so can help improve your SBA loan application — especially if you have a low DSCR. If you have multiple loans, you might consider business debt consolidation. If you have high-interest debt, on the other hand, you might try to refinance your loan.
Strengthen your business plan. A comprehensive business plan can help persuade lenders of the potential of your company — and can be particularly important if you're looking for an SBA startup loan. It might be helpful to work with a business advisor or your local Small Business Development Center to get professional advice on your plan.
Through this process, you should work hand-in-hand with your lender to make sure that your new application meets all necessary requirements.
3. Look into SBA loan alternatives
If you can’t wait to reapply — or still don’t think you’ll qualify — you can look into a variety of financing alternatives.
Based on your individual business and financial situation, you might consider:
If you have a lower credit score. Borrowers with bad credit may be able to get financing from online or nonprofit lenders. Online lenders may accept credit scores as low as 500, but can charge high interest rates. Nonprofit lenders might offer more competitive rates, but will likely be slower to fund. The availability of loans from nonprofit lenders can also vary based on your location.
If you’re a startup. Online lenders can offer startup business loans to companies with a minimum of three months in operation. Business credit cards can also be a good financing option for small and everyday purchases.
If you have low revenue. Some alternative lenders offer more flexible requirements for businesses with low revenue. Self-collateralizing options, like invoice factoring or equipment financing, can be accessible choices as well. Because these products have built-in collateral, lenders tend to be more lenient with other eligibility requirements.
If you need financing fast. Online lenders tend to offer the fastest funding times, with some even providing same-day business loans. Keep in mind, however, that the speed and flexibility associated with these products usually results in higher interest rates.
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