The Small Business Administration (SBA) is a significant lender to companies in the United States, either directly or insuring other lenders’ loans. The SBA has strict criteria for which firms it would lend money to, and satisfying them may be difficult. Even if you’ve gone through the application procedure, your SBA loan may be declined.
You’ll have questions, and we’re here to help at Bridge Payday. We’ll cover frequent SBA loan denial causes, how to prevent them, and what to do if your firm is still refused.
How Many SBA Loans Are Denied?
We don’t have particular SBA lending data, but we know that most company loans are denied. Approval rates for large banks range from 10% to 30%, while approval rates for local banks and credit unions range from 20% to 40%. This implies that each loan has a 50% probability of being denied.
Why Is My SBA Loan Denied?
There are several reasons why your loan application may be denied, but the most prevalent are:
- You have a bad credit score or a bad credit history.
- You lack adequate assets to guarantee your loan.
- You lack free money or cash flow to repay your debt.
- You have too much obligation.
- You have a tax lien, a judgment, or bankruptcy against you.
- You haven’t shown enough financial necessity for the financing.
- You work in a non-SBA sector.
- You are not a “small business.”
Can I learn why my SBA loan was denied?
If your loan is declined, you’ll be notified by the SBA or the lender. This should describe your loan. These letters seldom provide explicit grounds for denial. You should call the lender that declined you and ask why.
Reapplying for SBA Loans
In most circumstances, you may reapply for an SBA loan. You must wait 90 days following disqualification before reapplying for an SBA loan. Reapplying will need you to improve your application to boost your chances of approval. How to do it:
Improve Your Credit History and Score
Your credit score was utilized if your company didn’t have one. SBA loans are not available to those with bad credit.
- Managing your debt responsibly and not maxing out your credit cards will help you improve your credit score.
- They are making timely repayments and avoiding late payments.
- Longer credit history
- They are not defaulting on debts and avoiding judgments, liens, and bankruptcy.
- Excessive credit applications
- Having enough credit accounts.
If you have business credit, you will follow a similar method, concentrating on the debt and assets owned by your company.
Gain Cash Flow and Ability to Repay SBA Loans
Lenders need to know your company’s finances to assess your repayment ability. Better financial management reduces the lender’s risk and increases approval chances. Focus on these steps:
- Examine your company finances.
- Expanding your small business’s cash flow.
- Reduce overhead, hidden costs, and other expenditures to increase profit margins.
- Learn about fixed charge coverage ratios and corporate debt schedules.
- Pay off personal and company debt.
- Boost your tiny business’s earnings.
Collateralize Your Personal or Business Assets
Personal or corporate assets often secure SBA loans. The more collateral you can give, the more likely you will get authorized for a loan. If you can’t produce adequate collateral, you may still qualify.
Have an Older Business
Loan approval rates for new firms are lower. They’re untested, have no credit history, and acquiring early revenue and cash flow might be difficult. Established enterprises with a two-year track record are twice as likely to get accepted for an SBA loan.
What if I don’t want to reapply for an SBA loan?
The SBA isn’t the only option. Many specialized lenders can offer tailored financing for your specific demands. Connect2Capital specializes in connecting small companies to mission-driven lenders. This means we can frequently assist you in securing low-cost finance to help your company develop.