Reasons You Might Not Qualify for an SBA Loan
Business Loans that are backed by the Small Business Administration or an SBA loan is very attractive for business owners because they offer many different loan options to fit any business owners needs.
Longer terms are available and low interest rates. Most business lenders charge as high as 80 percent APR, an SBA-backed bank loan is roughly 7% depending on the amount you’re looking to borrow and for how long you need to borrow the money for as well.
Here is the reasons that most SBA loans get rejected
You’re a new startup business
Most lenders will not give SBA loans to startup businesses. They require 3 years in business and they expect the business owners to have experience in the industry they want to receive the loan in as well.
It can be hard to raise money as a new business, most startups are small local businesses. If you fall into this category, you will likely get denied for an SBA loan.
You still have loan options! You can borrow based on business cash flow. If you have online sales and have just three months of sales history, you could borrow based on Working Capital. If you have a lot of credit or debit card sales, you can get a merchant cash advance
Low credit score
To qualify for an SBA loan, you must have a good credit score, at least 650 for lenders to get you approved for an SBA loan.
You probably will be rejected for an SBA loan if you do not meet the credit score requirement, but you may have better luck with lenders that care less about credit score and have a more overall point of view or business evaluation process.
This is where Peach Capital Funding can help, we find the right lender to fit your business needs.
Banks are a lot more risk averse now days and want to protect themselves in the event that a business owner cannot pay back a business loan they provide you with.
The SBA backs up to 75 percent of the loan but the bank is still on the hook for the other 25 percent and this is a high risk for most banks to take.
The collateral that you provide is split between the SBA and the bank. If you do not have enough collateral, there’s a good chance that your loan will be denied.
Lenders that loan smaller amounts of money do not require collateral. The lender will base their lending decisions on your business’s cash flow and don’t care much about the assets.
personally guarantee the loan
When you personally guarantee a SBA loan, you are responsible for paying the SBA loan back, even if the business shuts down. If you don’t pay back the loan, the lender will sell off your personal assets to get paid back the amount they allowed you to borrow.
Lenders will require a personal guarantee for SBA loans to get approved. It you do not want to do this for an SBA loan, you won’t qualify.
SBA loans provide amazing low interest rates for your business to get funding. If a lender denies your SBA loan application for one of the reasons explained above, there are other lenders that are willing to work with you.
There are many business loan options for small businesses, Peach Capital Funding encourages business owners to learn about all their business loan options and choose the best loan program that will benefit their business long term.
contact our SBA loan experts today and let us help you with the SBA loan process or help you find the right business loan to fit your needs.