Was Your Application for an SBA Disaster Loan Denied? Here Are Your Next Steps

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Denied for an SBA Disaster Loan? Here's What to Do Next

So, you’ve taken the necessary steps to apply for an SBA disaster loan, only to have your application denied. The SBA disaster loan program exists so that business owners recovering from physical or economic disaster can access low-cost capital.

Nonetheless, the program still denies many applications for various reasons. If you’ve had your application for an SBA disaster loan denied, it’s hard to know where to go from there.

Understandably, recovering from a declared disaster is already difficult enough, and being denied an SBA disaster loan can make it that much more trying. Therefore, to help ease the stress of locating financial assistance for your recovery, we’ve compiled a guide to the next steps if your application for an SBA disaster loan was declined.

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A Game Plan for Moving Forward From a Denied SBA Disaster Loan Application

1. Can You Appeal Your Denied SBA Disaster Loan Application?

If your application for an SBA disaster loan was denied—and you think you’ve been wrongly declined—then you might be able to appeal this decision.

Before you decide to appeal this decision, however, you should ask: Why was your SBA disaster loan denied?

Although your final decision whether or not to appeal your denial can depend on a variety of factors, the most important factor will be why your SBA disaster loan application was denied in the first place.

Luckily, a few reasons why you would be denied SBA disaster loan funding reside in a bit of a grey area, so successful appeals aren’t unheard of.

Let’s break down the most common reasons why SBA disaster loans are declined, and whether or not they merit an attempt to appeal:

    Inability to Repay

    First, one of the main reasons for having an application for an SBA disaster loan denied is the “inability to repay.” This reason, as you can see, is extremely vague—plus, determining whether or not you demonstrate an ability to repay an SBA disaster loan is pretty subjective.

    Additionally, the SBA cannot consider any medical debt you have in making their decision about whether or not you qualify for a disaster loan. Therefore, if you think you’ve been denied for an SBA disaster loan on the grounds of “inability to repay” due to medical debt, you should definitely consider appealing.

    Credit History

    Another common reason for SBA disaster loan denial is your credit history. Unfortunately, if you have limited or challenged credit history, then you’re likely going to have your application for an SBA disaster loan denied. This being said, however, as we discussed above in regards to your “inability to pay,” the SBA can’t deny you if your bad or average credit is a result of medical debts you carry.

    Therefore, if medical debts are the contributing factor behind your challenged credit, then you also might be able to successfully appeal your denied SBA disaster loan application.

    No Collateral to Offer

    Lack of collateral is a tough-to-appeal reason for denial.

    If you apply for an SBA disaster loan of more than $25,000, then you’ll need to provide some type of collateral to secure it. Of course, if your property (a common type of collateral) has been destroyed in a disaster, this will likely feel like an unfair conundrum.

    Unfortunately, there’s not much you can do to work around this collateral requirement for a larger SBA disaster loan. This being said, you might be able to access FEMA grants if you’re denied an SBA disaster loan, so if you don’t think you can appeal your denial, you can skip to our second step to learn more about using federal grants for recovery.

How to Appeal Your SBA Disaster Loan Denial

If you do decide to appeal your SBA disaster loan decline, then you’ll need to submit your request for reconsideration to an SBA Disaster Assistance Processing and Disbursement Center (DAPDC) within six months of receiving your original denial. If six months have already passed since your initial application for an SBA disaster loan was denied, you’ll need to submit a whole new application.

This being said, your appeal request should contain documentation of the information that has led you to attempt appealing your SBA disaster loan denial. Plus, you’ll also need to provide updated and more recent business financial statements with your appeal.

Should your appeal itself be denied, then the next step would be to appeal directly with the Director of the DAPDC. If you continue to this secondary appeal process, it’s important to be aware that—more often than not—the DAPDC Director’s decision is final.

2. Determine If You Can Access FEMA Grant Funding

If you’ve received an SBA disaster loan denial and determined that you can’t appeal this decision, you should look into FEMA grant funding.

An important and perhaps surprising detail to note about an SBA disaster loan denial—is that it could be a good thing for your recovery. You have to be formally denied an SBA disaster loan to be eligible for certain forms of FEMA aid and assistance, like aid that would mitigate the costs of replacing trade tools and personal property, among many others. So, if you need to access to FEMA assistance for such costs, then having your application for an SBA disaster loan denied is actually a step forward in recovery.

In fact, if you’re not deemed eligible for an SBA disaster loan, then the SBA will likely refer you to FEMA grants that could cover one of the following disaster-related expenses:

  • Medical and dental expenses
  • Funeral and burial expenses
  • Car repair expenses
  • Clothing and household items, such as room furnishings and appliances
  • Tools required for work
  • Computers and schoolbooks required for education
  • Oil and gas for heating furnaces
  • Moving and storage expenses

All in all, having your application for an SBA Disaster Loan denied could open a door to even more affordable funding for your disaster recovery in the form of FEMA grants. Therefore, you’ll want to explore your options for government grants before you move onto other forms of debt financing. Avoiding interest costs—no matter how small those costs turn out to be—could make your recovery from a declared disaster that much easier.

3. Explore disaster assistance funding alternatives.

Whether you’ve gone through all the steps of trying to appeal an SBA disaster loan decline, or your original SBA disaster loan decline was for unappealable reasons, then it’s time to move forward.

Again, as we’ve just discussed, before you look into debt financing alternatives as a contingency plan to an SBA disaster loan, you’ll want to make sure that your denied SBA disaster loan application hasn’t opened up a door for you to be eligible for a federal grant. If you’re able to qualify for them, small business grants will be your more affordable option—you won’t have to pay the grant back, and you won’t have to pay any interest.

If FEMA grants for recovering from a declared disaster aren’t accessible for your business, however, you’ll want to start exploring your other options for financing.

Luckily, when it comes to your small business funding options, you’ll have a wide variety of alternative lenders to choose from. This being said, however, you’ll need to be pretty circumspect with who you take on debt from, now more than ever. You’ll want to be sure that you’re working with a trustworthy lender, and that you can afford to pay back any debt you take on to recover from whatever physical or economic disaster that’s struck your community. With this in mind, here are four options you might consider:

    Fundbox: Best for Easy Access Invoice Financing

    If you have any outstanding invoices, one of your best financing alternatives might be to access funding secured by those invoices. Fundbox, for example, offers invoice financing so that business owners can access advances for their accounts receivables.

    With their invoice financing, Fundbox can fund amounts from $1,000 to $100,000, with a repayment period of 12 or 24 weeks, and interest rates starting at 4.66%. Plus, once you repay your initial funding, you’ll be able to easily request more funds through your Fundbox account, much like an accounts receivable business line of credit.

    Kabbage: Best for Quickly Funded Lines of Credit

    If you’re not working with any accounts receivable as you move forward from having your application for an SBA disaster loan denied, then Kabbage might be a better option for you. Kabbage provides short-term business lines of credit with limits from $2,000 to $250,000 and terms of six, 12, or 18 months.

    Unlike most other short-term lenders, Kabbage offers monthly payment schedules, rather than weekly or daily payment schedules.

    This being said, it’s important to note that Kabbage’s interest costs will be front-loaded to your first months of repaying any withdrawal you make on your credit line. So, if you have a six-month repayment term, for example, your first two monthly payments will carry interest of 1.5% to 10% of your owed amount, whereas the following four months will only carry 1% interest. For one-year repayment terms, your first four monthly payments will carry the higher interest rate range and the remaining eight monthly payments will only carry 1% interest.

    Fundation: Best for Long Term Loans and Lines of Credit

    If you want to access longer-term funding for your recovery process, then Fundation will be a top option if SBA disaster loans or FEMA grants aren’t available. Fundation offers both term loans and lines of credit ranging from $20,000 to $500,000 with repayment terms from one year to four years long.

    Interest rates for Fundation term loans and business lines of credit range from 8% to 30%, but the longer-term repayment schedule makes Fundation financing much more manageable to pay back than any short-term funding that carries similar interest rates. Essentially, because you repay Fundation debt over a longer period of time, you monthly payments will be that much more affordable.

    Balboa Capital: Best for Equipment Financing

    Finally, if you’re not able to access an SBA disaster loan or any FEMA funding for the cost of replacing any equipment you lost in a declared disaster, then Balboa Capital is a top equipment financing lender to consider.

    Balboa Capital offers equipment loans from $3,000 to $1 million. Repayment terms for this equipment financing will range from two to five years and interest rates vary.

4. Triple Check Your Lender's Requirements

Whether you work with one of the four lenders above, or find another option that’s right for you, each lender will have their own unique requirements for your application.

If you had your application for an SBA disaster loan denied, this means you didn’t quite meet the specific SBA loan requirements for their disaster loans. This being said, however, although SBA loans are easier to qualify for than bank loans, they still require that you meet top requirements.

Therefore, even if you were denied an SBA disaster loan, it’s very likely that you can qualify for another type of funding.

Along these lines, here are the requirements for each of the lenders that we highlighted above:

    Fundbox Requirements

    • Sustained use of accounting software
    • Three months time in business
    • Must invoice customers
    • Minimum 500 personal credit score
    • Minimum annual revenue of $25,000

    Kabbage Requirements

    • Annual revenue of $50,000 or $4,200 per month for the last three months
    • No minimum credit score requirement
    • At least one year in business

    Fundation Requirements

    For a business term loan:

    • Annual revenue of at least $100,00
    • Personal credit score of at least 600
    • At least two years in business

    For a business line of credit:

    • Annual revenue of at least $100,000
    • Personal credit score of at least 660
    • At least one years in business

    Balboa Capital Requirements

    • Annual revenue of at least $300,000
    • No minimum personal credit score requirement
    • At least a year in business

5. Prepare the Required Paperwork for Your Application

If you’ve taken care to make sure that you meet the requirements that a lender names, then your next step in securing recovery funds will be gathering all the necessary documents for applying to this lender.

Luckily, the list of SBA forms necessary for applying for a disaster loan is often much longer than the documentation requirements for other sources of funding. Plus, because you’ve already applied for an SBA disaster loan, it’s likely that you’ll have many—if not all—of the documents you’ll need to apply for funding from another lender.

Here are document checklists for the four lenders we’ve highlighted:

    Fundbox Documents

    An online-accessible business checking account or account information from an accounting or invoice software that you’ve been using for at least two months, such as:

    • QuickBooks Online
    • FreshBooks
    • Harvest
    • Wave
    • Xero

    Kabbage Documents

    • Business tax ID
    • Social security number
    • Business checking account
    • If you use accounting software, at least three months of records

    Fundation Documents

    For loans or business lines of credit of $100,000 or less:

    • Three months of business bank statements

    For loans of lines of credit greater than $100,000:

    • Six months of business bank statements
    • Two most recent business tax returns
    • Profit and loss statement
    • Up-to-date balance sheet
    • Up-to-date debt schedule

    Balboa Capital

    • Certificate of good standing
    • Voided business check
    • Copy of your driver’s license
    • Two-year balance sheet (for deals above $250,000)
    • Two-year profit and loss statement (for deals above $250,000)
    • Two years of business tax returns (for deals above $250,000)
    • Three months of business bank statements (for working capital loans)

6. Apply for Your Funding

Once you’ve gathered all the documentation you need, the next step is simple, it’s time to apply for your chosen alternative source of funding.

Although you’ve done the preparation ahead of time, this step should be easy, but no less important. You’ll want to make sure you’ve completed your business loan application correctly and fully—and once you submit, you answer any questions from the lender promptly, to speed up the process and increase your chances of qualification.

7. Rebuild and Recover

Finally, you’ve reached the last step to moving forward after having an SBA disaster loan application denied.

At this point, you can receive your funds from your alternative source of financing and put them to good use.

Although your financing may be more expensive than an SBA disaster loan, you’ll want to be sure to keep on schedule with your payments as you use your funds to help your business rebuild and recover.

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Founding Editor and VP at Fundera at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. 

Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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