According to a survey conducted by the National Federation of Independent Businesses, roughly 75% of small business owners applied for a Paycheck Protection Program (PPP) loan and 40% of small businesses applied for an Economic Injury Disaster Loan (EIDL) before these programs were closed to new applicants on April 16, 2020. Of these applications, only 20% received PPP funding, and about 10% received an EIDL emergency grant.
If you applied for but did not receive federal funding through the SBA, there are a number of reasons why you might not have been approved. Rest assured that the SBA is not your only source of funding—there are still funding options available to you, including state and local funding programs and alternative lenders like Greenbox Capital.
Understanding why your federal loan application may have been disapproved can help you determine what alternative funding will work best for your business. Before we explore additional funding options, here are some common reasons why you may have had trouble accessing federal funding:
1. Your bank isn’t participating in the SBA’s funding programs
The SBA doesn’t actually provide funding directly—instead, it guarantees loans that are provided by SBA-approved financial institutions, including banks, credit unions, and microlenders. To access EIDL or PPP funding, you’ll have to apply for funding through a financial institution that will then submit your application to the SBA.
Not all banks are SBA-approved institutions or participating in the SBA’s funding programs. If your bank is not an SBA-approved financial institution or is not participating in the SBA’s funding programs, you may have trouble accessing funding through this channel.
2. Other financial institutions are prioritizing existing clients
If your usual lender isn’t an SBA-approved financial institution, you always have the option of working with another lender. However, due to the massive influx of funding applications, many financial institutions are prioritizing applications submitted by existing clients, and it may be difficult for new clients to submit an application.
3. You (or your financial institution) were too slow to submit your application
PPP and EIDL funding are available on a first-come, first-served basis. When the first round of funding became available in March 2020, some financial institutions were quickly backlogged and unable to submit applications in a timely manner, leading to delays and disapprovals.
Federal funding is still available, so if your first application was rejected, there is still time to re-apply.
4. Missing paperwork
Make sure you have all of your paperwork together and that all of your information is up to date before you submit a PPP or EIDL application. This includes key documentation like your latest tax records and average monthly payroll costs.
5. No funding was available
PPP and EIDL funding were in extremely high demand when the program first launched in March—in fact, demand was so high that funding was exhausted within 13 days.
With a second round of funding announced on April 24, 2020, small businesses that did not qualify in the first round of funding are being encouraged to apply again. If you applied and were approved for PPP funding, you do not need to apply again.
6. You’re self-employed and weren’t eligible during the first round of funding
Self-employed professionals were not eligible for PPP or EIDL funding till seven days after these funding programs were launched in March, and most of the funding had run out by the time these individuals were able to apply. With a new round of funding, it will be easier for self-employed professionals to access the funding they need to keep their business operational.
7. You’re a new business
In order to receive PPP or EIDL funding, businesses must have been operating long enough to supply financial records that prove they were negatively impacted by the COVID-19 pandemic. That means you’ll need detailed financial records covering at least 12 months of your business’s operations. If you’re a new business, you won’t have this documentation and it may be difficult to get funding through the SBA.
8. You have a low credit score
Credit score is not officially considered a qualifying criteria for PPP or EIDL funding, but it’s safest to assume it will be consulted while your application is being evaluated.
9. You had inconsistent cash flow before the pandemic
Demonstrating that you can maintain cash flow responsibly is even more important in a crisis like the COVID-19 pandemic—steady cash flow and strong cash management will show lenders that you know how to manage your business’s finances and that you are more likely to repay your loan on time. If your business is unable to show that there was consistent or responsible cash flow management before the pandemic hit, this may be why your application was not approved.
Alternative Funding Options
If you did not receive PPP or EIDL funding, don’t panic—there are still a number of funding options available to you, including other SBA funding, tax credits, state and local funding, Community Development Financial Institutions, and alternative lenders. Let’s take a closer look at each of these options:
Other SBA funding
PPP and EIDL funding are the most popular options for businesses negatively impacted by the COVID-19 pandemic, but other SBA funding options remain available, including 7(a) loans. If your business’s financials are strong but you applied late or were unable to access PPP or EIDL funding through your usual financial institution, you may be able to access other SBA funding now that financial institutions have worked through the worst of the backlog.
Learn more about SBA funding options.
In addition to providing funding, the CARES Act also allows employers to defer the deposit and payment of the employer’s share of Social Security taxes, as well as for self-employed individuals to defer payment of some self-employment taxes. This applies to taxes incurred between March 27, 2020 through December 31, 2020.
Similar to the PPP, the Employee Retention Tax Credit is designed to encourage employers to keep employees on their payroll. This credit consists of a refundable payroll tax credit for 50% of up to $10,000 in wages paid by employers whose business has been suspended during the COVID-19 pandemic, or businesses whose gross receipts decline by more than 50%.
You do not need to apply for the Employee Retention Tax Credit. If you received a loan under the PPP, you are not eligible for this tax credit.
State and local funding
Most states and many municipalities are offering their own funding options. Here is a complete list of state funding options.
Community Development Financial Institutions
Community Development Financial Institutions (CDFIs) are not-for-profit financial institutions that provide credit and financial services to disadvantaged areas, with a special focus on women and minority business owners. If you fall into one of these groups, you may be able to secure the funding you need from a CDFI in your area.
Funding is also available through alternative online lenders like Greenbox Capital. Alternative lenders may charge higher fees than the SBA, but this funding source offers a number of advantages for businesses impacted by COVID-19, including:
- Easier qualification criteria with less paperwork to gather
- Faster review and approvals, with approval in as little as 2-5 business hours and funding in as little as 1 business day
- There are no restrictions on how your funds are used—use them for payroll, inventory, or everyday operating expenses
- A variety of funding options are available to suit your business’s needs, including merchant cash advances, invoice factoring, collateral loans, and business lines of credit
- Businesses with low credit can receive funding. Instead of focusing on your credit score, our Funding Advisors will review the overall health and potential of your business
- Businesses in high-risk industries can also receive funding
If you didn’t receive federal funding through SBA-backed programs like the Paycheck Protection Program or Economic Injury Disaster Loan, you’re not alone. Many businesses had and are continuing to experience difficulties accessing this funding or were not approved for as much funding as they requested.
There are a number of alternative funding options available to small businesses negatively impacted by COVID-19, including state and local funding and alternative lenders like Greenbox Capital.