SBA Loan Denied?

ComCap, Inc

Get Your SBA Loan Approved!

At ComCap Inc, we specialize in getting SBA loan approvals for borrowers and businesses who have been previously denied financing from their banks. We’re able to do this because, as a brokerage, we’re not limited to the guidelines and requirements of one or two particular banks or lenders. 

How Do We Do It? 

Since we work with dozens of local, regional, and national institutions, we’re able to fine-tune the exact loan you qualify for without subjecting you to additional restrictions or requirements. It’s those additional restrictions that have been preventing you from getting an SBA Loan. To be specific, the SBA publishes and updates a Standard Operating Procedure (SOP) which all banks and lenders must follow to ensure the loan is insurable by the SBA. The SBA is actually a loan insurance program. The SBA issues up to an 85% guaranty on all loans they insure. 

That means that if a lender follows the SOP as written, the loan is fully insurable in the event of default. In other words, in your loan goes bad, the bank or lender will receive up to 85% of it back. This assumes of course, they followed the SOP. The problem for you as a borrower is that most banks and lenders overlay the SOP and put additional restrictions on the loan request that are not required by the SBA. 

Why Do They Place These Restrictions On You? 

Well, a term we hear quite a bit is, “An abundance of caution”. This simply means that most banks don’t feel the SBA goes far enough to “mitigate their risk”, so they do it themselves. For example, the SBA does not have a minimum credit score.  All banks and lenders in the SBA space, however, do have a minimum credit score. They don’t generally publish it, but it’s there, it’s enforced, and it’s usually 650 and above. 

There are some more aggressive banks and lenders who will originate loans for borrowers with credit scores between 620 - 650, but they are not altogether common. And there are ever fewer who will entertain anything below a 620. That’s where we come in. We only partner with banks and lenders who DO NOT OVERLAY the SBA requirements with their own restrictions. This allows us to qualify businesses and provide funding to those who have been turned down. 

Like the credit score example above, we've gotten borrowers approved for SBA loans with credit scores in the high 500's and very low 600's. It's really that simple. And we're really good at it. Was your SBA loan declined in Worcester, MA or a nearby area? We've outlined below a top 10 list of the most common denial reasons we see and how additional restrictions (overlays) factor into each of them.

Top Ten Reasons SBA Loans are Denied

1. Insufficient Cash Flow or Projection Based Loans 

Lenders require strong cash flow to ensure loan repayment and to qualify you for the loan. But if you’re a startup, a newer company, or one that is experiencing rapid growth, your current cash flow levels are only a part of the picture. What you’ll do after the loan with the proceeds is often just as important. So companies who will cash flow well after the loan but not before are often denied, regardless of what their pro forma projections look like. As a brokerage, we’re able to place your loan with a bank or lender who understands this, instead of hamstringing you based solely on past performance.

2. Credit Score 

As indicated above, and without exception, all banks and lenders have an absolute minimum credit score for qualification. So if you apply with banks who have a 675 minimum and you have a 620 credit score, you will be declined or you will not be approved for the loan that you want or need - You’ll get less based on an algorithm instead of whether you will actually pay the loan back. It doesn’t matter if that 620 credit score is based solely on credit card utilization, which accounts for 30% of your credit score. And It doesn’t matter that you only max out those cards during certain times of the year and that your score rebounds when you’re able to pay them back down. The only thing that matters is the score itself. We work with banks and lenders who will go as low as 600, and even lower on a case by case basis. 

3. Inadequate Collateral or Too Little Money Down 

While SBA loans don’t always require full collateral, a lack of assets can be a concern. In certain circumstances (expansions and business acquisitions for example), the SBA does not require any down payment or equity injection at all. 100% financing is absolutely available through the SBA 7(a) program and we offer it. Most banks and lenders will not go to 100% on any loan, at any time. They will always require an investment from the borrower. Having the borrower always inject money into the loan via a down payment is an overlay - It’s not an SBA requirement on certain programs. Further, our banks allow you to utilize many other avenues to swing the down payment. For example, seller financing, assets from additional guarantors, cross-corporate guarantees, utilizing other real estate, and deploying HELOCS are all avenues you may get push-back from your bank on - Needlessly. 

4. High Debt-To-Income Ratio 

Too much-existing debt compared to income raises red flags for most lenders. We see this one quite a bit - Personal expenditures are looked at as part of the bigger picture of the loan, but it’s not the most important factor. As long as there is a good explanation and your global cash flow is reasonable, we don’t generally see this as an issue in getting you approved. 

5. Industry Restrictions 

While certain industries (speculative real estate, political or lobbying businesses, illegal businesses, etc.) are ineligible for SBA financing, there are many others who despite being fully eligible, have a difficult time getting any sort of financing for their business. Restaurants and hotels are the most common asset or property types that we see banks and lenders declining the most. Restaurants have it particularly bad in terms of getting an SBA loan. While it’s true that there are genuine concerns regarding lending to restaurants - Their relatively high failure rate, employee/workforce issues, and often using a cash-based model to name a few, that is no reason to simply dismiss them out of hand or place additional restrictions or requirements on them. Further, there are certain banks, lenders, and credit unions who simply will not lend to restaurants. At all. As you may have guessed, we love restaurants and we place them all the time into amazing SBA programs.

6. Weak Business Plan 

A poorly structured or unrealistic business plan turns banks right off. To overcome this, one of our services is to craft a business plan that not only grabs the attention of the lender but crafts a unique, compelling story about you and your business. They say commercial lending is more an art than a science. And sometimes, getting your business and your loan request in front of the right person, at the right bank, at the right time, makes all the difference in the world but you won’t know that unless you explore your options. 

7. Lacking Experience in the Industry 

Simply put, your lack of relevant business experience reduces confidence in your repayment ability. That’s how banks and lenders often view a situation where you don’t have significant experience in the business or industry you’re getting into. There are strategies to combat this, however. Bringing on an experienced partner or manager will often put the bank at ease, as wilwelln the event of a business acquisition, entering into an agreement where the seller stays on in some capacity while you learn the ropes. The latter example is a highly nuanced situation that will often result in a bank turning you down, especially if business acquisition lending is not their particular area of expertise. It’s possible that your local bank may have an SBA offering, but it’s also possible that they may not do many or that SBA is not their primary area of focus. If that’s the case, you don’t want to trust them with a complicated business acquisition request unless they specialize in them and have done a ton of them. 

8. Excessive Loan Request 

The standard maximum loan amount for an SBA 7(a) loan is $5,000,000. However for many banks and lenders, as the loan amount goes higher, so do the additional restrictions - putting more money down, placing a junior commercial lien on all other property you may own, requiring additional guarantors, etc are all overlays to what the SBA program allows. Our banks not only don’t do that, but some will also do what’s called a Pari Passu loan and go over the $5 million cap. 

9. Recent Bankruptcies, Other Major Credit Events, or Tax Liens 

While these are certainly not minor concerns after all, unresolved tax issues, or bankruptcies can and do signal financial instability, they should not be automatic deal killers. They should not be conversation stoppers. And they should not be a cause for immediate denial. Unfortunately, all of the above happens all the time. For us, it’s just the opposite. The conversation doesn’t stop when you bring these things up - we think it’s just getting started. We can reel off example after example of SBA loans we successfully placed for businesses and borrowers coming off these major events. As mentioned earlier, as long as there’s a good reason, strong documentation, and strength in other areas of the loan, we can typically overcome every single one of these issues. 

10. Geographic or Property Specific Restrictions 

Most local banks are just that - Local. Being local of course, means having a local footprint. So if you are a good-sized Massachusetts bank with double-digit branches for example, your geographic reach may cover most of the state, but don’t venture too far east or too far west, or you’ll be out of luck. And if want to buy a business or expand into another state, once again, you may be out of luck. Unless you’re a national bank, the lending footprint of most banks is restricted to either the immediate marketplace (which may be just a few towns), the state, or a multi-state region. The bottom line is that your bank may not lend to you based on where you live or where your business is located. Lastly, since most banks manage a loan portfolio, they have to pay close attention to the performance and mix of loans they are currently managing. What that means, is that, at certain times of the year, we see banks and lenders just completely opting out of certain property types because of something happening within the portfolio. You may find your bank may not be lending on multi-family properties for a while. You may find another bank only lending on owner-occupied properties. Many other banks only lend on commercial real estate or increase the down payment requirements.

The Good News

The good news for us and for you is that as a brokerage, we’re able to find those banks and lenders who are: 

•  Genuinely interested in your loan and your business 
•  Will lend wherever you are or your business is 
•  Will not hamstring you with additional restrictions 
•  Will be a specialized lender in the space you are in 

Turning a Denial into an Approval

Things you can do to proactively help us turn denials into approvals:

1. Insufficient Cash Flow or Projection Based Loans 

• Strengthen your financials by increasing revenue, cutting unnecessary expenses, and improving profit margins
• Show consistent revenue trends and provide detailed cash flow projections

2. Credit Score
 

• Improve your credit score by paying off outstanding debts and making timely payments
• Address any inaccuracies on your credit report before applying

3. Inadequate Collateral or Too Little Money Down
                

• While SBA loans don’t require full collateral, offering additional personal or business assets can strengthen your application
• Consider a co-signer or additional guarantors if necessary

4. High Debt-to-Income Ratio
                

• Pay down existing debts before applying
• Avoid taking on new debt that could impact your loan eligibility

5. Industry Restrictions
                

• Ensure your business is in an SBA-eligible industry
• If your industry is high-risk, seek lenders that specialize in your sector

6. Weak Business Plan
                

• Create a well-documented, data-driven business plan with financial projections
• Highlight market demand, competitive advantages, and revenue streams
   

7. Lacking Experience in the Industry
                

• Gain relevant experience through employment, partnerships, or mentorships
• Consider bringing an experienced management team members or advisors
  

8. Excessive Loan Request
                

• Request only the amount necessary for your business needs
• Justify loan usage with detailed financial forecasts and cost breakdowns
  
   

9. Recent Bankruptcies, Other Major Credit Events, or Tax Liens
          

• Resolve outstanding tax liens or set up a repayment plan
• If bankruptcy is recent, wait until your financial standing improves before applying.

10. Geographic or Property Specific Restrictions
                

• If the concern is based on the lending footprint, find a brokerage or bank/lender who operates regionally
  
• For property specific issues, you can put more money down, offer to cross-collateralize the loan with another property, request an exception, or call a brokerage or bank/lender who does not have those restrictions

Was your SBA loan declined in Providence, RI or a surrounding area? Contact us today for more information on how we can help.