4 Things that Automatically Disqualify You for a PPP Loan

4 Things that Automatically Disqualify You for a PPP Loan

4 Things that Automatically Disqualify You for a PPP Loan

As millions of small business owners are applying for low-interest loans associated with the Paycheck Protection Plan, I can’t help but think of all the small business owners I personally spoke with over Facebook last weekend as the PPP got off to a rather bumpy start as lenders tried to absorb the new regulations associated with the SBA’s disaster relief loans. With that in mind, it seemed like a good time to share 4 things that automatically disqualify you for a PPP loan and talk about an option or two for next steps.

As lenders across the country are starting to come online, myself and everyone at Nav has been committed to provide the most accurate and up-to-date information we could to answer questions and provide actionable information to hopefully help you make decisions. It has not been easy as rules have been vague—and even changed over the days and weeks. Because I’m neither an employee of the SBA nor an attorney or accountant, I encourage you to consult with your attorney, accountant, or CPA if you fall into any of these categories before you apply for a PPP loan.

What 4 Things Automatically Disqualify You For a PPP Loan?

According to the SBA, and clearly spelled out in the application for a PPP loan, the following four things will automatically disqualify you for a loan.

You Have Defaulted on an SBA Loan in the Past

“Has the Applicant, any owner of the Applicant, or any business owned or controlled by any of them, ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government?” 

If the answer is “yes” the application will not be approved. 

You are Suspended or Voluntarily Excluded by any Federal Agency from Participating in this Transaction

“Is the Applicant or any owner of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?”

If the answer is “yes” the application will not be approved. 

If You Are Subject to an Indictment for Criminal Charges or are Presently Incarcerated or on Probation or Parole 

“Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole?”

If the answer is “yes” the application will not be approved. 

If You’ve Had a Felony on Your Record Within the Last 5 years

“Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?”

If the answer is “yes” the application will not be approved. 

Are the Options if my Application for a PPP Loan Will be Automatically Declined?

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A lot of time and good credit behavior will mitigate some of the challenges associated with these four conditions, but some of them are more complicated to overcome than others and will definitely require legal counsel to review your situation and make decisions about next steps. If you’ve defaulted on an SBA loan, but it was longer than seven years ago, for example, there are law firms that specialize in helping businesses though the process, but many of them suggest it will likely take up to 10 years of exceptional credit behavior and a protracted legal process.

A felony on your record doesn’t necessarily disqualify you provided it is not recent and you currently have a clear record.

If you have a strong credit history, there are some options available to you for alternative forms of financing, but they will not be the same low-interest loans currently being offered by the SBA.

Other Financing Options

Business Credit Cards

If you are experiencing one or more of the 4 things that automatically disqualify you for a PPP loan, a business credit card can be a good option. Especially given the recent cuts to the Prime Rate by the Federal Reserve, which means credit card APRs could be lower than they were last year at this time. Although a number of credit card providers are accepting fewer credit card applications right now, there are still some that are.

A Business Line of Credit

A business line of credit is a time-tested way for a small business to have quick access to cash to meet an unanticipated need. The upside of a line of credit is you pay for what you borrow, but know the full line is available if you need it — a good option for business owners who haven’t been hit yet, but want to be prepared nonetheless. 

If you already have a line of credit, Nav is already talking with customers who have seen their total credit lines cut, so we encourage you to take a draw now before the funds are unavailable. This is a precaution, and one we wouldn’t normally recommend if we didn’t anticipate continued tightening among business lenders.

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Non-Traditional Funding Sources

A crowdfunding campaign or micro-lender might be a good source of capital to get you over the next several weeks. I became familiar with the micro-lender Kiva a few years ago and have become a big fan. They will offer up to $15,000 0% interest loans to small businesses that meet a few important qualifications.

Kiva says it doesn’t judge borrowers just by their credit history. You will need to provide information about your monthly debts, though, and you cannot currently be in bankruptcy. 

To complete your loan request you’ll need to share a personal story that explains why you are passionate about your business, as well as describe how you will use the funds. If approved, you’ll need to find people in your network (friends, family, fans of your business) to initially fund a small portion of your loan. (According to Kiva, borrowers must invite between 5 and 35 lenders from within their network depending on the loan size and other factors.) Kiva says this step helps provide accountability and demonstrates social capital.

Access Home Equity

There are a lot of reasons to avoid using your home equity to access capital in a crisis, but many businesses turn to home equity when there is’t credit otherwise available. Please consult with your accountant or CPA before taking this step. This is not something we would regularly recommend and would be a last choice.

Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.

This article was originally written on April 9, 2020.

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ABOUT AUTHOR

Ty Kiisel

Ty Kiisel

Ty has been writing about small business and the business finance topics that impact a business’ bottom line for almost 20 years. With over 35 years in the trenches as a Main Street business evangelist, author, and marketing veteran, he makes the maze of small business finance accessible by weaving personal experiences and other anecdotes into a regular discussion of some of the biggest challenges facing small business owners today.

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3 responses to “4 Things that Automatically Disqualify You for a PPP Loan

  1. What if I am denied due to bad credit? I read that your credit score is not tied to your eligibility because the PPP money is expected to be forgiven. What can I do now that I was not approved due to credit.