Why the SBA May Turn You Down – And Alternatives If They Do!

Small businesses are usually on the lookout for funds to help them grow. For this purpose, Small Business Administration (SBA) loans can be a remarkably attractive option. Not only do these loans carry lower interest rates and longer repayment terms than most other business loans, but they are also available in a range of sizes and can be used for any purpose – from buying real estate to refinancing debt. However, there’s a catch. SBA loans are difficult to obtain.  Many businesses that approach banks are turned away for one reason or another. Here are a few reasons why your organization may not be approved for an SBA loan, as well as some of the alternatives you can pursue.

Reason No. 1: Not enough experience

Most banks do not issue SBA loans to start-ups who have been in business less than a couple of years and who do not have enough experience in the industry. Thus, if you’ve just set up shop, you may find it difficult to obtain funds for your business.

However, there are a couple of options available for such organizations. for one, they can borrow based on the amount of cash flow they generate. PayPal Working Capital is willing to lend to businesses that rack up plenty of online sales even if they have just three months of sales history. Similarly, companies that have a lot of debit or credit card sales can obtain merchant cash advances from providers like CAN capital.

Also, start-ups can approach Accion. They are a nationwide loan provider that lends to new businesses up to $30,000.

Reason No. 2: Credit score not high enough

Most banks ask for a minimum credit score of 600. If your score falls below this threshold, you are unlikely to qualify for an SBA loan. You can get around this by approaching lenders who consider criteria other than credit score while providing loans. For example, Fundbox lends money after evaluating the company’s unpaid invoices. Behalf carries out purchase financing and combs the internet and social media for data that can help it assess the organization’s creditworthiness. If your credit score is less than 550, you can approach OnDeck or Kabbage for short-term business loans.

Reason No. 3: Inadequate Collateral

Usually, about 75% of the loan extended to a small business is guaranteed by the SBA, while the bank offering the loan has to take responsibility for the remaining 25%. At any rate, the collateral provided by the borrower is split between the SBA and bank, which is why loan requests may be rejected if the business doesn’t have enough assets to provide as collateral.

One way to override this problem is to approach lenders like PayPal Working Capital, FundBox, Behalf and Accion that extend loans based on the cash flows generated by the business. Another option is to consider short-term lenders like OnDeck and Kabbage. However, the drawback in this case is that while they don’t ask for a specific amount of collateral, they nevertheless place a lien on your business assets which you may lose if you are unable to pay back the loan.

Reason No. 4: You do not wish to personally guarantee the loan amount

Personally guaranteeing means that if you are unable to pay back the loan, the lender can sell off your personal assets like your car, house, and etc. Personal guarantees are required for SBA loans and this may not be acceptable to a lot of borrowers. Again, some of the alternative lenders mentioned above like PayPal Working Capital, Fundbox, and Behalf, do not require the loan to be personally guaranteed. However, the loan amount approved may be smaller, and it may be costlier.

Reason No. 5: You operate in an excluded industry

Businesses that operate in certain industries are ineligible for SBA loans. These include life insurance companies, lobbying organizations, certain types of franchises, certain types of health care businesses, and more. In these cases, you have no option but to approach lenders that do not put forward such restrictions. For example, Fundbox is willing to lend to any legal U.S. business that invoices customers in U.S. currency. Behalf will lend to any legal U.S. business that has a bank account and a social security number for the primary owner.

At Fund&Grow, as well, we help clients obtain as much as $250,000 at as low as 0% interest through creative credit card financing. These loans are available for a period of 6, 12 or 18 months and can be used for any purpose – from financing small businesses to providing a down payment on real estate. Thus, if you can’t get the funds you need to grow your business, call us at (800) 996-0270 and we will do our best to help you out.