SBA disaster loans can be a great option for affordable, long-term financing if your business has suffered a disaster. Although these small business loans have been most recently associated with the COVID-19 pandemic, the program is available when any “declared disaster” impacts your business—such as a hurricane, earthquake, or flood.
If you’ve taken the necessary steps to apply for an SBA disaster loan, however, only to have your application denied, you might be unsure where to turn next. In short, you can evaluate why your application was denied and if you think you were declined unfairly, you can submit a request for reconsideration to an SBA Disaster Assistance Processing and Disbursement Center (DAPDC).
Here’s everything you need to know about moving forward from an SBA disaster loan denial:
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 on whether or not to appeal your denial can depend on a variety of factors, the most important factor will be why your loan application was denied in the first place.
One of the main reasons SBA disaster loans are denied is the “inability to repay.” The SBA may believe that you don’t have enough cash flow or your credit utilization is too high.
In any case, even though you’re looking for funding to repair your business, you still have to show the SBA that you’ll be able to pay back the capital you’re borrowing.
That said, it’s important to note that 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 an SBA disaster loan on the grounds of repayment due to medical debt, you should definitely consider appealing.
Another common reason for SBA disaster loan denial is your credit history. Unfortunately, if you have a limited or challenged credit history, then you’re not likely to qualify for an SBA disaster loan.
The SBA can’t deny you, however, if your bad or average credit is a result of medical debts you carry. So, 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.
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, you can scroll down to learn more about using federal grants for recovery.
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.
Your appeal request should contain documentation of the information that has led you to attempt to appeal the denial. 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.
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.
FEMA grants may be able to cover any of the following disaster-related expenses:
Exploring FEMA grants—and similar types for free funding—can be a good option before turning to 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.
Read our guide to the best small business grants.
Even if you can’t appeal your SBA disaster loan decline or access FEMA grants, there are alternatives available for your business to get financing.
As you compare options, 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.
Here are three top disaster assistance funding alternatives you might consider:
A business line of credit can be a great option for recovery financing, especially if you need to supplement your cash flow. With a business line of credit, unlike other types of debt financing, you only pay interest on the funds you draw, and in most cases, once you repay what you’ve borrowed, your credit line will reset to the original amount.
If you want to access a fast and flexible business line of credit, Fundbox offers a revolving line in amounts up to $150,000, with a repayment period of 12 or 24 weeks. Interest rates start at 4.66% for 12-week terms and 8.99% for 24-week terms.
To qualify, your business should have:
Read our full Fundbox review.
Term loans, in which you receive a lump sum of funds and repay the money, with interest, over a period of time, can be a good option if you have a specific use case for the capital. If you need to fund a specific repair or rebuild part of your business, a term loan may be right for you.
Accion Opportunity Fund is a nonprofit lender that offers small loan amounts, up to $100,000, but focuses on affordability and accessibility for underserved businesses. These loans have interest rates starting as low as 5.99%, a range of terms, and monthly repayments. To qualify, you need:
Opportunity Fund also offers small business coaching and mentoring to help businesses grow and build, as well as recover through difficult times.
Read our full Opportunity Fund review.
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 you might turn to other types of equipment financing.
Equipment financing allows you to purchase or lease a piece of equipment you need, using the equipment itself as collateral. Because equipment financing is self-collateralizing, this funding can be easier to qualify for compared to alternatives.
Balboa Capital can be a great choice for equipment financing, offering loans up to $2 million. Repayment terms range from two to five years and interest rates vary. To qualify, you’ll need to have:
Read our full of Balboa Capital review.
No matter which option turns out to be the right one for you:
Remember to plan out how you’re going to spend your funds and make your payments. Staying organized with your financing can help as you rebuild and recover—and will be essential if you need to apply for additional capital in the future.
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.