If you’re like most small business owners, you’re still struggling with cash flow as stay-at-home orders stretch on and on. If you find your PPP loan application rejected, you may be wondering what business financing options you have left.
The initial $349 billion that the SBA put into the program quickly ran out, so some businesses may have been rejected for PPP loan funds for that reason. However, the SBA did replenish the Paycheck Protection Program funds in April with an additional $310 billion available through banks and online lenders, but even those funds won’t last forever.
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One thing to note: it is imperative that, if you do receive a Paycheck Protection Program loan, you actually need it. Treasury Secretary Steven Mnuchin has said that small businesses that don’t appear to actually need the funds may be investigated.
What to Do if Your Paycheck Protection Program Loan Application was Denied
If you were denied PPP loan funds, you might want to review your PPP application for possible errors. For example, one number off on your Employer Identification Number could automatically deny your application.
Make sure your application is forthright. Inaccurately reporting your monthly payroll expenses or number of employees could result in fines or even jail time. The Treasury Department has begun investigating potential PPP fraud applicants, so be sure to be honest in your applications.
Another reason your application may have been denied is a given lender’s requirements. While the SBA has some guidelines for who qualifies, banks and other lenders can add other requirements to those. Some only want to lend to businesses they already have a relationship with. Others prefer to lend to companies that want larger loans. Some don’t want to lend to a sole proprietorship because it can be more difficult to prove income. If you’re not clear, talk to a representative where you’re applying to see if you’re eligible. If not, try another PPP lender.
If you’re applying for PPP with multiple businesses or franchises, know that you may not qualify.
How to Know if Your Application for a PPP Loan Has Been Denied
More than likely, you will receive notification from the lender you applied through, not the Small Business Administration, if your loan application was denied. Depending on the lender, you may or may not be given a reason for the denial. You are able to apply for the Paycheck Protection Program loan through other SBA lenders, but if you don’t qualify (you run a franchise, or have more than 500 employees, for example), you may still be denied.
Payroll Tax Deferral & Employee Retention Credit
Even if you didn’t qualify for the SBA PPP loan, here’s a little silver lining. The CARES Act established payroll tax deferral for businesses that did not qualify for loan forgiveness under the CARES Act (PPP and EIDL). Through this program, eligible employers can defer payment of payroll taxes incurred between March 27, 2020, and December 31, 2020. This includes:
- Employer’s portion of social security taxes
- Employer’s and employee’s share of Tier 1 Railroad Retirement Act tax
- Self-employment taxes
There is also an employee retention credit against payroll taxes for 50% of qualified wages of an eligible employee for wages paid between March 13, 2020, to December 31, 2020. This credit is refundable if it exceeds the employer’s social security or Railroad Retirement Act Tax due in a quarter.
Just to reiterate: if you receive the PPP loan and get all or part of it forgiven, you are not eligible for payroll tax deferral.
Consider the Other SBA Loans
There’s been so much focus on the Economic Injury Disaster Loan and the Paycheck Protection Program loan that many business owners have forgotten about other SBA loan programs. You may still qualify for loans like these.
SBA 7(a) Loans
This SBA small business loan, which is available up to $5 million, can be used for construction, renovation, working capital, or to refinance debt for compelling reasons.
SBA Express Loans
If you need up to $350,000 and need the money quickly, this is a popular loan option.
SBA 504 Loans
Looking to expand or update your business? This loan program requires 10-20% cash as collateral and offers long-term, fixed-rate financing to acquire fixed assets.
If you’re looking for a smaller loan, a microloan might fit the bill. Loan proceeds can be used for things like working capital, supplies, machinery, equipment, fixtures, or refinancing debt to improve cash flow.
Alternative Lending Options for Small Businesses
Beyond SBA loans, there are other financing options to consider if your PPP loan application was denied.
- Online term loans
- Business lines of credit
- Equipment financing
- Invoice factoring
- Merchant cash advances
- Vendor credit
- Business credit cards
Online Term Loans
Online term loans have shorter repayment periods (typically under three years, if not even shorter. While you can get cash quickly, know that sometimes they require weekly or even daily repayment. Interest rates vary, but can be high.
Business Line of Credit
If you want access to funds when you need them rather than applying for a lump sum you immediately have to start paying back, look at a line of credit. Businesses use them for working capital or expanding payroll, among other uses.
Maybe your office computers need to be replaced, or you need a piece of heavy machinery. In that case, an equipment loan is perfect. You don’t need to provide collateral, since the equipment you’re purchasing serves as that collateral.
Another loan that doesn’t require collateral is invoice factoring (the future accounts receivable act as your collateral). Interest rates can be high, but your credit scores are less of a consideration than your accounts receivables and past sales. (Get your free business credit scores here.)
Merchant Cash Advance
Though it has the highest costs of these financing alternatives, a merchant cash advance does serve a purpose. If you don’t have the credit scores to qualify for other loans, you more than likely can still qualify for a merchant cash advance. Also, you can get the money in as little as one day.
Crowdfunding can be a great option where you don’t have to pay back a loan. You can offer rewards to donors or equity to investors.
If you regularly make purchases from the same vendors, see if they offer vendor credit or tradelines. This frees up your cash flow while giving you more time to pay on an invoice.
Business Credit Cards
While not technically a loan, having a business credit card gives you the freedom to pay for purchases you may not have cash available to cover. The key is paying off your balance in full to avoid interest.
Nav’s Final Word: What to Do if Your PPP Loan Application was Denied
With times so uncertain for businesses, it can be frustrating and stressful to be denied for the SBA’s PPP loan. The key is not to give up. Get to the bottom of why your application was denied, and if you still believe your business qualifies, apply again through a different bank or lender.
But also look at your other options for a business loan or financing. What we’ve all learned from the COVID-19 pandemic is that preparation and persistence are key to thriving through difficult times like these. Stay informed, as things are changing rapidly. Get more information on the Paycheck Protection Program and more information on EIDL.
This article was originally written on May 14, 2020 and updated on January 20, 2021.
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