Why was my SBA loan declined? What to do after a denial

Getting turned down for any loan stings. SBA loan denials can be especially painful. If you’ve applied for one, you’ve likely spent time gathering documents, preparing your application, and hoping to get approved. But instead your application is rejected. 

You're not alone. Even solid businesses may not qualify. But you may be able to turn a no into a yes, depending on the reasons for rejection and your business qualifications. 

What are the eligibility requirements for an SBA loan?

Before jumping into reasons, let's cover the basics. The SBA offers over 10 different loan programs, each with its own requirements. These baseline standards exist to protect taxpayers who ultimately back these loans through the SBA guarantee.

SBA loans often offer competitive interest rates and favorable repayment terms — that's why they're often considered worth the extra effort. The U.S. Small Business Administration (SBA) generally doesn't make loans directly. Instead, it guarantees loans made by approved lenders. (The exception is SBA disaster loans, which the SBA makes directly to small business owners.)

Read Nav’s guide to SBA loans here

Generally to qualify for most SBA loans, your business must: 

• Meet SBA size standards for a small business.
• Operate in an eligible industry (some industries like gambling or speculation are excluded).
• Run as a for-profit business.
• Do business in the U.S. or U.S. territories.
• Have reasonable owner equity invested.
• Show you can't get similar financing elsewhere on comparable terms.
• Demonstrate acceptable credit.

These requirements set the floor. Individual lenders may add their own standards on top of SBA minimums, as long as they don’t discriminate on a prohibited basis. 

Some exceptions exist. Disaster loans may be available to certain nonprofits, for example, and COVID-19 Economic Injury Disaster Loan (EIDL) eligibility was expanded beyond typical standards.

What are common reasons for an SBA loan denial?

Here are some common reasons your application may be rejected. Understanding them can help you prepare to apply, and to respond if your application is turned down. 

Credit score issues

The first requirement for SBA lending standards is that the applicant is creditworthy. 

For SBA loans generally, lenders may use a business credit scoring model and they may consider the credit score or credit history of the applicant (and the operating company, if applicable), its associates and any guarantors.

For 504 loans, Certified Development Companies (CDC) are required to obtain and review credit reports for the small business concern applying for the loan, all owners who are guarantors and affiliates who are guarantors. The analysis must include a discussion of the applicant’s credit history, including a review of business credit reports and any experience the CDC may have with the applicant. 

Export Working Capital loans require lenders to explain their credit experience with the applicant including a review of business and personal credit reports.

For the most part, the SBA doesn’t set minimum credit score requirements, but lenders may. 

Some lenders check a FICO® SBSS℠ score. This score can evaluate personal credit, business credit, as well as financial and application data. The SBSS score ranges from 0 to 300, with higher scores considered “better” because they indicate lower risk for the lender.

Until recently, SBA lenders have been required to prescreen 7(a) Small Loan applications using a SBSS score, with a minimum score of 165 or more required. (That minimum was raised from 155 in June 2025). As of March 1, 2026 that requirement no longer applies, but it is expected that many lenders will continue to use the SBSS score because that’s what they are familiar with. Requirements can change; confirm current SBA/lender screening rules.

If credit is preventing you from qualifying, consider these steps before reapplying:

• Pay down credit card balances to lower your credit utilization.
• Build business credit. 
• Set up automatic payments to avoid any future late payments.
• Dispute errors on your personal and business credit reports.

Insufficient cash flow

Cash flow is how lenders evaluate whether you can afford to pay back the loan once you get it. They look at your ability to generate enough money from operations to cover debt payments.

For existing businesses, lenders commonly request recent returns (often two to three years), plus interim financials, balance sheets, income statements, and debt schedules. The numbers need to show positive cash flow that covers your proposed loan payment plus a cushion.

Startups get more flexibility. You'll need detailed financial projections showing positive cash flow within two years, along with the assumptions behind those numbers.

If cash flow is your problem consider the following options:

• Reduce expenses before reapplying.
• Increase your down payment to lower monthly payments.
• Consider a smaller loan amount.
• Show new contracts or revenue sources that improve cash flow.
• Delay expansion plans until cash flow improves naturally.

Inadequate collateral

For many SBA loans, insufficient collateral alone isn’t always the deciding factor if repayment ability is strong, but lenders may still require available collateral and personal guarantees. Many of these programs were designed for businesses that can repay but lack assets. However, the SBA requires you to pledge available collateral to secure the loan.

That could mean you are required to pledge your home equity if business assets aren't enough to secure the loan. For certain loans under $50,000, lenders don't have to take collateral.

Keep in mind collateral isn’t always worth as much as you may think. Here’s an example of how the SBA commonly values various types of collateral: 

Lack of owner equity investment

SBA loans typically require owners to contribute financially to the business. This owner's contribution is called "equity injection." If you're starting or buying a business without putting your own money into it, expect a denial.

The SBA typically requires at least 10% equity injection for new businesses (under one year old) or when buying an existing business. Equity injection rules vary by program, lender, and transaction type so confirm with your lender.

Some exceptions exist, so ask your lender about your specific situation. But plan on investing your own cash.

What counts as equity injection:

• Cash you invest in the business.
• Equipment or other assets you contribute.
• Money you've already spent on startup costs.
• Seller financing that you're personally paying (in some cases).

Cash from a personal loan may be acceptable in some cases, depending on source/repayment as long as it will not be repaid from the business.

Note the “sweat equity” or unpaid work does not count toward the equity injection. 

Credit available elsewhere

The SBA loan program exists to help businesses that can't get conventional financing on similar terms. If you can get a comparable bank loan without SBA backing, you're not eligible. 

Don't worry too much about how you will prove this. Your lender documents why you need SBA backing rather than conventional financing. Just understand that if their explanation doesn't satisfy the SBA, your application can be rejected.

This could become an issue when:

• Your business has strong cash flow and assets.
• You're requesting a small loan amount relative to your business size.
• You have excellent credit and substantial personal assets.
• The business has been profitable for many years.

Criminal history

You must fill out a borrower information form: SBA Form 1919 for 7(a) or SBA Form 1244 for 504 loans. It includes questions about criminal history. 

Criminal records don't automatically disqualify you, but the SBA has specific character standards. Your application will be declined if you (or any owner ) are currently incarcerated, or under indictment for a felony or any crime involving or relating to financial misconduct or a false statement. This is general information; eligibility decisions depend on SBA rules and lender review.

If you or other owners are on parole or probation, you may be eligible. However, if the success of the business depends on that person’s involvement, you’ll need to provide a plan for the continued operation of the business in the event of re-incarceration, and the lender must consider if an additional guarantor is necessary.

What could be disqualifying:

• Current charges or incarceration
• Convictions related to financial crimes
• Patterns of criminal behavior
• Failure to disclose when asked directly

Prior default on government loans

SBA loans come with a government guarantee. When borrowers don't repay and the lender can't collect, taxpayers absorb the loss. That means the SBA takes prior losses on federal debts seriously. 

Lenders must check the Credit Alert Verification Reporting System (CAIVRS) for the following:

• Delinquent federal debt: You are not eligible if you (or any guarantor) have a federal debt that is currently delinquent (unpaid within 90 days of the due date). This includes federal student loans and other nontax debt. However, you may regain eligibility if you cure the delinquency or enter into a satisfactory repayment plan.
• Prior loss to the government: A more serious issue is a "prior loss." This occurs if you, or a business you controlled, defaulted on a federal loan (like a previous SBA loan) and the government incurred a loss (e.g., a write-off or incomplete repayment after bankruptcy).
• Student loans and taxes: Note that personal student loans and unpaid taxes are not considered "prior loss" under this specific rule, though they are reviewed under creditworthiness and delinquency rules.

If you are delinquent on a federal debt, you may be able to qualify for an SBA loan if you bring the loan current, even through a payment plan. For a prior loss to the government on a federal debt like another SBA loan, you’ll have to pay the debt in full to be considered for a new loan. 

What makes a strong SBA loan application?

Now that you know the common pitfalls, let's talk about what success looks like. A strong application demonstrates planning, financial responsibility, and a clear path to repayment and is comprised of several attributes:

• A comprehensive business plan: Your plan should outline your business model, market analysis, marketing strategies, financial projections, and management team. Show you understand your industry and target market. This isn't busy work—it proves you've thought through how you'll use the loan and generate revenue to pay it back.

Need help? A SCORE mentor or SBDC advisor may help for free. 

• Strong personal and business credit history: With SBA loans, both business and personal credit may matter. Work on improving your personal credit scores and build business credit by establishing accounts with vendors who report to business credit bureaus. Pay everything on time for at least six to twelve months before applying.
• Detailed financial statements: You may need to provide balance sheets, income statements, and cash flow statements. If you are using accounting software, it should be easy to generate these statements. You may want to get your accounting professional involved to make sure they are accurate. 
• Sufficient collateral: Understand what collateral you have, and what it's worth to a lender. This could be business assets like equipment or inventory, or personal assets like real estate. For more valuable collateral, you may need independent appraisals. Don’t pay for those until you know the lender will require them. (There may be specific requirements for appraisers.) 
• Clear equity investment: Show you've invested your own money. The more you put in, the better. If you can exceed the 10% minimum owner equity injection, that may help.
• Defined purpose for the loan: Spell out exactly how you'll use the funds. Whether it's working capital, equipment purchases, or expansion, be specific. Include quotes from vendors, contracts, or other documentation supporting your plan.

Your lender will help you, but it’s important that you help them by providing missing information as soon as possible. If you are behind on your bookkeeping or your records aren’t organized,  you’ll want to get them together before you apply.

What to do after an SBA loan denial

Getting denied doesn't necessarily end the conversation. You may still be able to get an SBA loan, including through another lender. 

Review your denial letter carefully

Your lender must send a letter explaining why you were denied. Read it carefully. Some reasons are obvious, others need clarification.

Questions to ask your lender:

• Which specific requirement did I not meet?
• Was this a lender requirement or an SBA requirement?
• What documentation would help support my case?
• How much do I need to improve (credit score points, cash flow amount, etc.)?
• Is reconsideration an option for my situation?

Don't be afraid to push for clear answers. You need to understand exactly what went wrong to fix it.

Determine if it was a lender or SBA requirement

The SBA sets minimum standards that lenders must follow. These standards protect the SBA's loan guarantee. But lenders can add their own requirements on top of SBA minimums, as long as they don't discriminate against borrowers on prohibited bases.

Examples of lender-specific standards:

• Minimum credit score thresholds
• Required time in business
• Industry preferences or restrictions beyond the SBA's list
• Debt-to-income ratio requirements
• Minimum cash flow multiples

If a lender's standard caused your denial, you might qualify with a different lender who has less strict requirements. If an SBA requirement caused the denial, you'll need to fix that issue before any SBA lender will approve you.

Create an action plan to address issues

Once you understand what went wrong, make a plan to fix it. Be realistic about timing. Consider the following to bolster your chances of approval the next time a lender reviews your application:

• Credit score improvements: You may need at least six to 12 months of on-time payments before you'll see meaningful increases in your credit scores. Monitoring your business and personal credit can be helpful. 
• Cash flow issues: Similarly, you may need at least six to twelve months to reduce your expenses and increase your income so you can qualify. 
• Equity injection: You might need several months to save additional funds you can put into the business or to liquidate assets, or you may need to borrow funds from friends or family to boost this amount. 
• Delinquent federal loans: You may be able to get on a repayment plan to catch up on these loans.

Can you reapply for an SBA loan after denial?

You may be able to reapply for an SBA loan after denial, though it depends on your specific situation. Discuss this option with your lender.

Reconsideration process

Some denials can be reconsidered without waiting if you have new information or documentation that addresses the denial reason.

Once your application is submitted to the SBA's Loan Guaranty Processing Center (LGPC) and declined, you generally can't get approved by any lender using their Preferred Lender Program (PLP) authority for 12 months. The SBA's systems won't allow it. In some cases, SBA system restrictions can limit resubmission for a period of time — ask your lender about reconsideration options and timing.

However, if your lender believes you've overcome the denial reasons, they can request reconsideration from the SBA. They must do this within six months of your denial date, with a detailed written explanation of how you've addressed the issues.

If the reconsideration request is submitted more than more than 120 days after the denial date, lenders must include updated financial statements with the request.

Your lender can walk you through this process if they think you may qualify for reconsideration. Steps generally include:

• Contact your lender immediately after denial.
• Gather new documentation addressing the denial reasons.
• Write a detailed explanation of what has changed.
• Respond to your lender’s request for additional documentation.

Working with a different lender

If your experience with your lender wasn't good, you may try another SBA-approved lender. But you must disclose your previous denial.

When approaching a new lender:

• Be upfront about the previous denial and why.
• Explain what you've done to address those issues.
• Bring documentation showing the improvements.
• Ask if they have different lending standards.

Different lenders have different risk appetites. A lender that specializes in your industry might be more willing to approve your loan than one that doesn’t.

Make sure you have addressed issues related to credit, cash flow, or other key qualifications before you reapply.

Alternative financing options if denied

You need funding now, but you're not ready for an SBA loan. Here are your options while you work on qualifying.

For startups

Startups often get denied because they lack the financial history SBA lenders want. These alternatives can help bridge the gap:

Crowdfunding: Raise money from many small investors or donors. Rewards-based crowdfunding (Kickstarter, Indiegogo) works well for product-based businesses. Equity crowdfunding lets you sell small ownership stakes.

Business credit cards: Get capital quickly with a small business credit card. Many offer 0% intro APR periods.

Vendor or supplier financing: Many suppliers offer net-30, net-60, or net-90 terms. Some provide longer payment plans for large purchases.

For credit challenges

If credit issues caused your denial, these options work with lower credit scores:

Merchant cash advances: Get upfront cash in exchange for a percentage of future credit card sales. With a merchant cash advance, approval is based on revenue, not credit.

Invoice factoring or financing: Turn your unpaid invoices into immediate cash. Factoring companies buy your invoices at a discount. Invoice financing uses invoices as collateral for a loan.

Crowdfunding: Can work regardless of credit if you have a compelling story.

Tips to improve your chances of SBA loan approval

Getting approved for an SBA loan may be possible with the right preparation. Here's how to help set yourself up for success:

• Build business credit before applying: Establish accounts with vendors that report to Dun & Bradstreet, Experian, and Equifax. Not all vendors report, and reported data may not appear on every report or change scores. Pay everything on or before the due date for at least six months. Check your business credit reports for errors.
• Improve personal credit strategically: Pay down high credit card balances. Set up automatic payments so you don’t miss a payment. Apply for new credit carefully. 
• Get updated financial statements: Ask your tax professional to help you prepare your financial statements to make sure they are accurate. Include notes explaining any unusual items.
• Document everything: Keep detailed records of how you'll use loan proceeds. Get quotes for equipment purchases. Include vendor contracts. Show purchase orders or customer contracts. Document your equity contribution with bank statements.
• Write a strong business plan: Address the five Cs of credit: Character, Capacity, Capital, Collateral, and Conditions. Show you understand your market and competition. Include realistic financial projections with supporting assumptions.
• Choose the right lender: Not all SBA lenders are the same. Look for lenders experienced in your industry. Ask about their approval rates. Find out their typical credit score and cash flow requirements.

Avoid these common mistakes:

• Applying before you're ready.
• Failing to explain problems in your credit history.
• Submitting an incomplete application.
• Being unclear about loan purpose.
• Underestimating how much capital you need.
• Forgetting to include personal financial statements.
• Not having copies of all required documentation.
• Ignoring your lender’s requests for additional information.

Get free help: Free counseling is available through SCORE mentors and Small Business Development Centers (SBDCs). 

Moving forward after denial

An SBA loan denial doesn't define your business or your future. Most business owners who eventually get approved were denied at least once.

Use the denial as information. It tells you where your business needs to strengthen. Maybe you need more time to build credit, boost cash flow, or accumulate assets.

While you work on qualifying for an SBA loan, keep your business moving forward with alternative financing. Many successful businesses started with credit cards, vendor financing, or other options before graduating to traditional loans.

Check your progress every three to six months. When you've addressed the denial reasons, reach out to your lender or try a new one. 

The effort you put into qualifying for an SBA loan builds a stronger business overall. Better credit, stronger cash flow, and organized finances will benefit you whether you get the loan or not.

Looking to check your business credit as you work toward SBA loan approval? Get free business credit scores and reports with Nav to monitor your progress.

This content is for informational purposes only and is not legal, tax, or financial advice. SBA rules and lender requirements vary.