What To Do If Your SBA Loan Application Is Denied

Why SBA Loans Are Denied and How To Appeal

Person wearing glasses, sitting at a desk

Tempura / Getty Images

Small Business Administration (SBA) loans provide another option for small businesses that otherwise can’t qualify for loans. In this case, the SBA does not act as a lender, but instead works with lenders to set the guidelines and guarantees the loan will provide the funds. Businesses look to SBA loans when they’ve run out of options. But what do you do if your application is denied?

There are still options for those who don’t qualify or have issues with their SBA loan application. Learn what factors come into play that may impact your SBA loan application’s approval, how to appeal if you’ve been denied, and what alternatives are available.

Key Takeaways

  • The U.S. Small Business Administration (SBA) works with lenders to provide loans to support small businesses that are in need of financial assistance.
  • The SBA sets the qualifications and eligibility requirements for businesses applying for loans.
  • SBA loans may be denied if the application is incomplete or if certain eligibility standards are not met, such as the location of where the business is operated or the amount of equity the owner has invested.
  • Businesses that receive a denial for their SBA loans can file an appeal directly with the Small Business Administration’s Office of Hearings and Appeals, as long as it is filed within 45 days of receiving the denial.

Why Was Your SBA Loan Declined?

There are a number of factors that could impact your SBA loan application or even cause it to be denied. Usually, an application is denied if it is incomplete or if certain requirements are not met.

Since the SBA provides funding through its lenders, these requirements may vary depending on the bank or financial institution that processes the loan.

Generally, eligibility comes down to the type of business, its ownership, and the location of the business. Basic requirements for small businesses are as follows:

  • It must be an officially registered for-profit business. Registration statuses include a limited liability company (LLC), limited liability partnership (LLP), or a sole proprietorship.
  • The business must operate in the U.S. or its territories.
  • The owner of the company must have invested equity.
  • The business must have exhausted or denied all other financing options.

There are a few other requirements for small businesses to be approved, which are detailed below.

Business Doesn’t Meet Size Standards

SBA loans are only available for small businesses as defined by the SBA. To meet the standard, companies need to employ a certain amount of workers or bring in a certain amount of revenue, depending on the industry. Businesses above the specified threshold for their industry do not qualify.

Credit Worthiness

Your SBA loan application may have been denied due to your credit score. Lenders reference your business credit, if available, and personal credit if needed.

Maintaining your credit when applying for business loans is crucial, so check both your business credit score and your personal credit score prior to applying for the loan. You can check your business credit score using several free online sites, and you can check your personal score through the three major credit reporting agencies.

Financial Ability To Repay a Loan

Lenders determine whether your business has the ability to pay back the loan. Some of the things that may be considered include collateral, tax returns, cash flow projection, and other financial documents. In some cases, you may be able to appeal this decision if you can show your ability to repay.

Other Reasons Regarding Eligibility

There are several other reasons regarding general eligibility that a business might be denied for an SBA loan. The reasons depend on your industry, need for funds, and your business’s general history. Other reasons for a denial could include the fact that your company is a startup, your business’s finance history, or the type of industry you are in does not qualify for an SBA loan.

How To Appeal Your Denial

Depending on the reason your SBA loan application was denied, you may be able to file an appeal. For example, you may submit an appeal if you were denied based on the size of your business and other eligibility concerns. The SBA makes decisions on appeals through its Office of Hearings and Appeals (OHA), and it will depend on the type of loan you applied for.

If you would like to appeal the denial of your SBA loan application, there are a few steps you need to take.

Determine Why You Were Denied

Before you can send in an appeal, it’s important to understand why your application was denied so you can provide the proper information as needed. Knowing why you weren’t approved can help to provide insight as to what steps you need to take to overturn the decision with an appeal or to improve your business and reapply.

There are many reasons an SBA loan might be denied. If you don’t understand the reason for the denial, contact your lender to determine whether you can file an appeal.

Gather the Necessary Documentation

Regardless of the decision you are appealing, you’ll need to have documents to back up the facts and provide proof. You’ll need a copy of the determination for the SBA loan, as well as supporting documents for your appeal. For example, if you’re filing an appeal regarding the size of your business, make sure to include financial statements that show the amount of revenue your business has made, or payroll documentation that outlines how many employees are currently at your company.

Filing Your Appeal

When filing your appeal, include all important documents pertaining to the reason for the denial and follow any specific instructions for your appeal, such as contacting other departments and including certificates of service and contact information.

You can file an appeal through the Hearings and Appeals Submission Upload Application, by email, or by fax.

Generally, appeals must be filed within 45 calendar days of receiving denial, although some must be filed within 10 or 15 days, as it depends on the loan you applied for. With the 8(a) business development program, for example, appeals must be filed within 45 calendar days. Generally, appeals can take up to 90 days to process.

Steps To Reapply for SBA Loan

If you are unable to appeal or tried but still could not be approved, you can work toward improving your business where needed so you can reapply in the future. If you were denied for a reason such as your credit score or the amount of time and money invested into your business, those are goals to work toward that will help you attain funds in the future.

There are a few steps that could increase your chances of approval when you reapply for the SBA loan:

  • Improving personal credit and business credit score by paying bills on time.
  • Improving business cash flow to show ability to repay the loan.
  • Increasing equity by investing more time or money into your business.

Applying for an SBA loan is a tedious process that can be very time-consuming, so if you plan to apply again, it is best to ensure you meet all eligibility requirements.

Alternatives to SBA Loans

There are other financing options available for businesses that need immediate funding or do not meet the criteria for an SBA loan. Some of the alternatives to SBA loans include:

  • Business credit cards: Applying for business credit cards is a great option for those looking to build business credit. With options like secured credit cards, companies are able to separate their personal credit from business.
  • Online lenders: Although they may have higher interest rates, online lenders can help provide funds for your business. Before going this path, conducting research is crucial, as each online lender sets its own standards.
  • Microloans: Similar to traditional loans, microloans are meant to cover smaller expenses, such as a piece of equipment, and they are also offered by the SBA. The approval process is more simplified, and can provide your business with up to $50,000 in coverage. On average, microloans are about $13,000.

The Bottom Line

Whether you’re looking to appeal a denied SBA loan or you’re simply looking for alternative financing options, it’s important to understand where your business stands financially. Knowing this can help you gauge which steps to take next to improve your business.

Frequently Asked Questions (FAQs)

How do I check the status of my SBA loan application?

If you are applying for an SBA loan for the first time, you’ll need to contact your lender for the status. Businesses with existing SBA loans can check their statuses online by accessing SBA Capital Access Financial System (CAFS).

How long does the SBA loan approval process take?

The approval process for an SBA loan can be a long process for business owners. Some SBA applications may take a few weeks, but some may take several months.

Can I reapply for an SBA loan if I was denied?

You can reapply for an SBA loan if you were denied, but it is important that you only do so after undergoing key changes that prevented you from receiving the loan the first time you applied. As the process for applying and receiving an SBA loan is lengthy, it is recommended to take some time to improve your business and ensure you will be approved before applying again. You may reapply 90 days after you submitted your application.

Do I need to establish business credit to be approved for an SBA loan?

SBA loans are processed through lenders, so the specific credit requirements are set by each lender. Generally, personal credit is considered if a business is new or has not yet established a business credit score.

Article Sources

  1. U.S. Small Business Administration. "Loans."

  2. U.S. Small Business Administration. "8(a) Eligibility Appeals."

  3. U.S. Small Business Administration. "Size Appeals."

  4. U.S. Small Business Administration. "Microloans."

  5. Small Business Administration. "SBA Account Login and Registration Portals."

  6. U.S. Small Business Administration. "Typical Application Timeline, and How to Interpret Your HCTS Messages." Page 2.