What to do if you don't qualify for an SBA loan

The Small Business Administration (SBA) is a federal organization that helps businesses get connected to funding opportunities and provides other types of support like educational resources. It famously offers small business loans through a handful of programs, including the 7(a) loan program, which includes standard loans of up to $5 million and small loans of up to $500,000.

That being said, not all businesses qualify for an SBA 7(a) loan. Here's how to know if you qualify and what you should do if you don't but still need funding for your business.

An SBA loan is any loan offered through an SBA program by a participating lender. The SBA doesn't directly lend out money itself, but instead manages a network of small business lenders that offer funding.

Lenders that are part of the loan program offer funding that's guaranteed by the SBA. In other words, if the borrower defaults on the loan, the SBA reimburses the lender. This makes small business lending less risky for lenders, which is why it can be advantageous for them to offer funding through this program despite the SBA's involvement in the review process.

The SBA has several requirements your business must reach in order to be eligible to apply for the SBA 7(a) loan program.

• You must have an active, for-profit business located in the United States.
• Your business must be considered a "small business" by the SBA's size requirements. This means having a maximum of 500 employees (including full-time and part-time employees) and an average annual income that doesn't exceed $7.5 million, among other requirements.
• Your business must not be considered an ineligible business. Ineligible businesses include nonprofits, banks, finance companies and other companies that engage in lending, life insurance companies, businesses engaged in illegal activity, private clubs, government-owned entities (unless controlled by a Native American tribe) and businesses that get more than one-third of their revenue from legal gambling activities.
• Your business must have healthy credit and the ability to repay the funding.
• Your business must be unable to receive reasonable terms for your desired funding through non-government sources.

Additionally, the lenders participating in the SBA's 7(a) loan program may have their own restrictions on who qualifies for their loans. This can include more specific credit score requirements or a minimum annual revenue requirement.

The SBA requirements can make it tough to qualify for a small business loan through their 7(a) loan program. If you don't meet all of the requirements and are ineligible for an SBA loan, here are some alternative funding sources to consider for your small business.

If you have bad credit

The SBA doesn't have specific credit score requirements but the lenders within their loan program can have set minimum requirements. If you don't meet those requirements, consider a small business loan for bad credit.

OnDeck is a lender that considers lower credit scores, with a minimum requirement of just 625 FICO^® score for loans as high as $250,000. One caveat, though, is that your business will need to have been active for at least one year and earn at least $100,000 in annual revenue.

Kiva, a nonprofit that helps finance small businesses, offers crowdfunded microloans to promising businesses. Kiva doesn't have a credit score requirement and mall businesses can walk away with up to $15,000. The microloans also come with 0% interest and businesses will have up to three years to repay their loan.

If you haven't launched your business yet

Some lenders that are part of the SBA 7(a) loan program may require your business to earn a certain amount of revenue or have been in business for a set period of time, which doesn't help you if you haven't yet launched. You could, however, start a crowdfunding campaign on a platform like Kickstarter or Indiegogo.

With these platforms, you'll set a fundraising goal and users can give you small amounts of money to help you reach that goal. The money doesn't need to be paid back, however, keep in mind that if you reach your fundraising goal the platforms will take a 5% fee from your proceeds. If you don't reach your fundraising goal, you won't be charged a fee.

If you run a nonprofit

Nonprofits are not eligible for the SBA 7(a) loan program, however, there are grants available specifically for nonprofits. Grants don't have to be paid back but the grant application process can sometimes be tedious and funding times can vary depending on the issuing organization.

To find nonprofit grants, check grants.gov to get started.

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