Why Was My SBA Loan Approved Then Denied? (Why And What To Do Next)

Applying for any loan can be a long and arduous process. Once the paperwork has been filled out, you just have to sit back and wait for the result. Unfortunately, we don’t all get the result we were hoping for. Being denied a loan can be confusing, especially when you don’t know why you have been refused in the first place.

Even more confusing is when you are approved for a loan at first but then denied. It’s truly a rollercoaster of emotions.

Having your application for an SBA loan denied is a frustrating experience. This is especially true for business owners who require urgent financial help.

SBA loans often come with some of the best interest rates on the market and they are further guaranteed by the U.S. Small Business Administration. Therefore, they are extremely competitive.

When you have been denied an SBA loan, there are a few courses of action you can take. However, these generally depend on the reason for the denial and your current state of business finances.

Your SBA loan application can be turned for a number of reasons as they are quite notorious for being difficult to get approval with.

Read on to find out some reasons why your SBA loan was approved and then denied. We will focus on the reasons for rejection so you can discover which applies to you and your situation best.

Why Your Application Was Rejected

There are various reasons why you can be denied an SBA loan. However, when your loan application is denied, you should receive an explanation for this decision. If no explanation is given, you should contact the lender with whom your application was processed to get more information.

As with any loan, the SBA has a set of requirements that applicants must meet to qualify for a loan. If your business does not meet one of these criteria, the loan can be denied.

The list of requirements include:

Your Business Size

Your business must meet the SBA’s criteria for a small business. If not, the application may be denied. The industry in which you work can determine the necessary requirements. Nevertheless, the number of employees and your business’s yearly revenue income are primarily taken into consideration.

Your Business Operations

Your business must legally operate for a profit. It must also have all registration requirements fulfilled. The business has to be operated within a sector that is eligible for an SBA loan. Industries that are not eligible for such loans include gambling, lending, and religious services.

Your Financing Requirements

You must seek other financing options and services before you apply for an SBA loan. You should also demonstrate that your business is in need of these funds and have a clear plan of how you intend to use the money. Without these steps, you may not qualify for an SBA loan.

Your Business Location

To successfully acquire an SBA loan, your business must be physically located in the United States. The borrower must also live in the U.S. as well.

Your Business Character

Your business needs to demonstrate that all bills are paid on time and it is not delinquent on already existing loans. Furthermore, any partners that share at least 20% ownership can not be currently incarcerated, on parole, on probation, or defendants in any criminal case.

Any Existing Investments

You need to demonstrate that you have made some kind of personal investment into your business to meet the strict SBA standards. This can be displayed through time or money.

As well as SBA requirements, you must also consider the criteria and needs of individual lenders. Work with lenders to discuss what is required before you apply so you are aware of any potential pitfalls and setbacks that could arise along the way.

Review Your Application And Reapply

When you get the bad news that your SBA application has been denied, you can fight it if you believe it is unwarranted. On the other hand, you can also review the entire application and make it stronger for re-application.

Qualifying for an SBA loan is essentially a numbers game. For instance, various lenders will have specific credit score minimums that you need to meet.

They may also have a specific amount of collateral that they require. You can view these requirements as being too rigid and a negative aspect of the whole process. Or, you can view them as guidance and a way of making loans predictable. Such outlines can make it easier to strengthen your application and then reapply.

Of course, re-application isn’t the best option for all business owners. According to SBA guidelines, a borrower must wait 90 days after receiving a denial notice before reapplying for an SBA loan.

This is because SBA lenders tend to check credit scores using an E-Tran system. This system remains active for 90 days. It’s not until these 90 days are up that the credit can change to reflect any changes in your application.

If you need quicker funding (less than 90 days), we recommend finding an alternative to an SBA loan instead.

Furthermore, reapplying doesn’t suit all situations. For instance, if your business is in a certain industry, it could be difficult to obtain financing.

All lenders have strict policies against lending to particular industries. Therefore, if a lender has declined your loan application based on your business industry, SBA funding may not be available in your case. Again, you would be better off seeking alternative methods of financing.

If you find that reapplying is the right decision to make for your company, you can strengthen your application in various ways. Here are some examples:

  • Improve your business and personal credit
  • Wait a few months
  • Improve your business financials

If you can not wait or find that your business falls into a sector that is not supported by SBA loans, you should consider alternative methods of financing.

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