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If I Get Turned Down for an SBA Loan, What’s Next?

An SBA loan is a small business loan partially guaranteed by the Small Business Administration.  SBA loans eliminate some of the risks for the financial institution that issues the loan. SBA loans work within a network of approved lenders that lend money to small businesses.

While we may know the benefits of an SBA loan, one of the scariest questions to answer as a small business is what to do if you are denied.

Determine Why Your Loan Wasn’t Approved

According to the American Dream Gap Report, nearly half (45 percent) of small businesses get turned down more than once, and 23 percent don’t know why. The first step after an SBA loan is denied is to determine why. Even if you do not plan on reapplying for an SBA loan right away, it is a good idea to find out why your business did not qualify.

Understanding why you were denied can help you decide on how to proceed with your business. The good news is, if your application is rejected, you are entitled by law to a written letter of explanation from your lender. Contact your lender and ask for specifics on why your loan application was rejected and what you can do to improve your chances of getting approved next time.

Understand Your Business Credit Score

As the Small Business Administration reports, one of the most common reasons that SBA loans are denied is due to business credit. You may have a good or even better than average personal credit score (which is also important in SBA loan eligibility), but a business credit score is different. This tracks only the payment history, debt, risk, and industry factors of your business and excludes your personal finances.

If your business credit is low, there are a few things you can do to improve it. While factors like length of time in business might be out of your control, set goals and work towards things like paying your vendors on time, open business credit lines and pay them regularly, and lower your business’s debt. It is also important to ensure that there are no mistakes on your reports.

Improve Your Application

The paperwork in an SBA loan is not simple to fill out, especially if you are not well acquainted with it.   You might already know that certain documentation or areas of your application were missing. Take the time to review these areas carefully before re-applying. You may consider working with a bookkeeper or business coach to organize financial statements, legal documents, and reiterate a solid business plan. Lenders will take note of this attention to detail and additional effort, which means it may affect whether or not you are approved for the loan.

Falcon National Bank has a legacy of partnering with small business customers to meet financial needs, plan for the unexpected and adapt to changing business necessities. Contact the expert team at Falcon National Bank to determine if an SBA loan is right for you and your best steps forward.