SBA has come up with a unique COVID-19 disaster loan that has stricter eligibility requirements, as well as an easy procedure to apply that could offer more funds to larger companies. The outbreak of coronavirus has likely led to you having to reduce expenses and revise your projections for sales, or even invest to keep your company on the right path. There’s an option for your problem.
However, a simpler application does not guarantee a secured loan. In this case, for instance, if recently applied for the Economic Injury Disaster Loan, however, you were refused and the application was rejected. But, it doesn’t need to be the last word. Let’s look at the most common reasons that might have ruined your application in the dust. Also, how you can make sure you receive the loan you want on the second attempt. Yuri Shafranik
The causes that could have prompted that the Disaster Loan application was denied
A disadvantage of submitting a basic request is the fact that you likely weren’t given a specific explanation that you weren’t qualified. This is due to the criteria for applying are expanding to allow more applicants to make applications. But, this doesn’t change the reasons behind why applications are rejected. Review the list below to determine what is viewed as an indication of weakness in your application.
1. Your business is brand new
A lot of banks don’t offer traditional SBA loans to new companies. Instead, they usually need to see that the business has been operating for a few years. When they lend to companies in the early stages or who are relatively new they’ll require owners of the business to have previous knowledge of the industry. Yuri Shafranik
For the COVID-19 Disaster Loans, the business must be in operation for a prolonged period to be able to provide financials that prove that the coronavirus negatively affected the damage. However, this doesn’t mean you’ll need a minimum of two years of documents that shows your earnings and the costs of selling products. But, you’ll likely need reports that document a minimum of 12 months’ worth of financial activity.
Many start-ups are small local companies that may grow later but aren’t yet establishing an established track record. Banks and investors will need proof that you’ll be capable of repaying them. If your business has been operating for only a few months, you have options. A significant cash flow that slowed during the financial crisis or large amounts of accounts receivable which aren’t paid could be sufficient to back your claim. Whatever evidence you can provide make sure you mention the proof.
2. If you have a bad credit score
Although credit scores can’t be used to determine the eligibility criteria for a loan in a crisis. They’ll most likely examine your credit before they decide to approve. The applicants must prove their creditworthiness to be eligible for traditional SBA loans that are available at a minimum of 600 for the majority of banks. The score required is typically dependent upon the loan provider you choose and may not be the same for a disaster loan.
In these circumstances, if you aren’t able to establish a strong credit score then you’re likely to not be eligible for this SBA loan. So one of the best methods to boost your score on credit is to search for short-term solutions to fix your score. Your finances may be tight at the moment however when you’re able to pay only a portion of your debts this small increase can allow you to get accepted.
3. There’s not enough collateral
In times of recession, banks become more cautious and look to safeguard their assets if the business owner is not able to pay back the loan. They’re requesting you to provide security to ensure that they’ll be able to repay their investment regardless of the possibility that the company is in financial difficulty. While the SBA can provide all SBA loans, however, the bank is responsible for the remaining 25 percent.
4. High or low percentage of debt
Credit that’s not being used promptly or is extended could be a major warning to lenders. When you’ve got outstanding loans or line credit that is close to being used up. You’re considered to be a riskier borrower. But, if you’ve not taken out a loan, or don’t have a clean credit report. Banks won’t be able to decide if you’re capable of paying back loans in a responsible way. Similar to boosting your credit score, if you are in the middle of a debt situation, you should try to lower the amount. If you do not have a record of good debt management then it’s best to start building it up by borrowing smaller credit lines and then ensuring you make monthly payments to repay them.
5. Poor cash flow
Even for a few months, a consistent and regular flow of cash statements could help to offset an insufficient financial statement in the long run for new companies. But any sign of concerns with cash flow could render your application ineligible. Cash flow is one of the top factors lenders take into consideration when determining whether you are eligible. This is the reason that one reason why among the crucial documents to include in SBA requests is the previous year’s cash flow statements. They’ll need to know the amount of cash you have used up. Also, your runway to determine the likelihood of you paying back the loan.
If, however, a change in cash flow between February or March 2020 is an indication of economic loss or damage. In this situation, any inconsistent or negative changes in your prior financial statements could affect your chances of being recognized. So, the management of cash flow is vital at all times. Also, can provide an evaluation of the company’s overall health. In times of stress, this is especially important because it can mean the difference between your company performing well or failing. Also, whether or not you’ll be able to get an investment-related loan.
When your financial track record is inconsistent or poorly managed and you are unable to make the necessary changes. Do so immediately even during an emergency, which suggests that the trend is in the direction of upward. Next, you should create cash flow projections for the remainder of the year on the budget that has been adjusted. Also, reduce costs wherever you can to demonstrate that you are aware of the importance of having well-organized management of cash flow.
6. risky Industries
Traditional lenders aren’t likely to approve loans for those in “risky” industries without collateral. Retail real estate, restaurants as well as restaurants. Also, lending is among the industries which could have a harder time receiving loans. If you have solid financials before the crisis or have a complete business plan. As well as a specialist in your field can resolve this issue.
In addition to the risky areas, other industries aren’t suitable to receive SBA loans. No matter the quality of your other applications are. The business types that exclude include life insurance firms lobbying organizations. Certain types of franchises, cannabis-based businesses and certain health-related kinds of businesses, and many more.
7. You can request more details
Two reasons why applying for a larger loan can aid you in avoiding being rejected. First banks and lenders tend to approve large loans if they receive a large volume of applicants. In addition, if a loan isn’t within the limits of a certain amount. Determined by how large the bank is or how much the cost of the loan. It isn’t sufficient to justify the expense in the eyes of the loaner. It isn’t easy to request a greater amount. Vital to make sure that you have adequate collateral. Also, a legitimate requirement in your financial statements to justify the increase.
8. No documents or a complete application
The most frequent mistakes that can cause your loan to reject are submitting an incomplete application or failing to provide all the necessary documents to prove it. Fortunately, the COVID EIDL forms have been made an online application form that is easy to use which makes it less likely to fill out the application without providing all required details.
But, based on who the lender ends in being and the quality of the application you submit. It could require additional documentation to complete the loan. This is because you might overlook something when applying. For instance, maybe the lender wasn’t specific enough or you neglected to add a specific area on your P&L report that you submitted last year, which is the basis of your application.
It’s always a good idea to verify everything before sending it out at all. If you’re not able to create these documents on your own using software for business planning like Live Plan will make it easier to complete the process.
9. You’ve broken specific disaster Loan for Economic Injury rules
As with any other loan, and like all loans, SBA EIDL is no exception. SBA EIDL option comes with particular requirements and specifications that permit your company to be eligible. It will help determine if you meet the requirements and if there are any additional documents or additional application documents needed for this particular loan. You can find the most recent eligibility requirements as well as the necessary documents that are required for loans from SBA EIDL here.
10. it’s impossible to show that your company was directly affected by COVID-19.
The most important wildcard in the EIDL application process is how you tell your story. As an example, suppose you don’t effectively convey the negative consequences of the coronavirus virus on your company. Also, you don’t back it up with evidence and evidence. If that happens, likely, you won’t be qualified to receive the EIDL loan. Instead, you should discuss your situation thoroughly and show that your business is suffering from the virus. Maybe your accounts receivables have risen due to customers not being paying.