Having your SBA loan application denied is frustrating, but it doesn’t have to mean that your pursuit of additional funds is over. By understanding some of the most common reasons that loans get denied, you may be able to set yourself up for success when you apply again.
1. You have a low (or new) credit score
Your credit score helps lenders evaluate how reliably you have managed debt in the past. When reviewing an SBA loan application, lenders typically consider both personal and business credit profiles as part of a broader approach to risk assessment. A stronger credit history may signal that a borrower consistently meets financial obligations and may be better positioned to manage new debt.
Several factors influence your credit score, including:
- Amount of unpaid debt
- Length of credit history
- Repayment history
- Current loans
- Past foreclosures and bankruptcies and when they occurred
Typically, credit scores fall into the following ranges:
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800 or higher
Higher credit scores typically make it easier to get a loan. However, that’s not the only benefit. Since people with higher scores may generally be considered lower risk, you may also get access to lower interest rates.
2. Your credit history has a warning sign
When lenders review your credit history, they’re typically looking for warning signs, such as bankruptcy. While bankruptcy is there to help individuals and businesses through financial hardship, it can leave devastating and long-term damage. Your credit health may take a hit, with your score dropping by anywhere from 100 to 200 points. And you know by now that having a solid credit score is important in getting your SBA loan approved. The same is true for foreclosures.
These events typically stay on your credit report for up to 10 years, and that may be why your SBA loan was denied. This is another good reason to always prioritize maintaining good credit health.
3. There’s a concern of character, like a criminal record
SBA loan applications involve more than financial evaluation. As part of the overall review process, lenders may also consider elements related to borrower background and business integrity. This review helps lenders confirm that applicants meet SBA eligibility requirements and that the business is being operated responsibly.
A standard credit report does not contain criminal history information, but lenders may conduct background checks during underwriting. In certain cases, past legal or compliance issues may prompt additional review or requests for clarification. The purpose of this step is not to automatically disqualify borrowers but to ensure that the lender fully understands the circumstances surrounding the application.
Past issues do not always lead to an automatic denial. Lenders might also consider the nature of the situation, how long ago the issue occurred, and whether the borrower has demonstrated responsible financial and business behavior since then. In some cases, lenders may request additional documentation or context before making a final decision on the application.
4. You don’t have enough collateral for a loan
In some cases, lenders may also take into account the amount of collateral that you can offer as a way of securing the loan. Collateral can be property, cash, or another asset that you own. If the borrower fails to make payments and defaults on the loan, the lender can seize the collateral and sell it to pay off the balance.
It’s worth noting that not all SBA loans require collateral. SBA microloans, which are capped at $50,000, typically don’t have collateral requirements. However, if you’ve applied for a larger loan and been denied, a lack of collateral may be to blame.
5. Your business doesn’t have enough revenue
If your business is struggling and revenue is down, a lender may feel uneasy loaning you more money. Having other collateral can help, but you want to be able to demonstrate that your business is thriving and will do even more so with the help of an SBA loan.
6. Your capacity to repay your debt is limited
In addition to impacting your credit score, having other loans may also limit your ability to meet monthly repayment obligations. Depending on your revenue, collateral, and other factors, lenders may consider the presence of another loan a red flag. Stricter SBA requirements require lenders to carefully evaluate how much debt a business can reasonably take on.
7. You provided incomplete documentation
One of the most common reasons SBA loan applications are delayed or denied is incomplete documentation. Because SBA loans follow a structured underwriting process, lenders must review detailed financial and business records before approving a loan. Missing or inconsistent information can make it difficult for lenders to fully evaluate your application.
Strong documentation helps demonstrate financial stability and operational transparency. Keeping financial records organized, up to date, and readily available can significantly improve the efficiency of the review process and strengthen future SBA loan applications.
What percentage of SBA loans are denied?
According to Forbes, 45% of SBA loan applications were denied in 2024, a significant increase compared to recent years. Applicants for SBA loans are often rejected because they cannot meet the SBA Debt Service Coverage Ratio.
How to reapply for an SBA loan
Having your first loan application denied doesn’t mean that you’re disqualified from receiving funding. However, the SBA requires you to wait at least 90 days before resubmitting your application. While this may be frustrating, this 90-day window is an opportunity to improve your financial profile, boost your credit score, and take other steps to increase the likelihood that your application gets approved.
Also, bear in mind that there are alternatives to an SBA loan, such as:
- Lines of credit
- Bank term loansGrants
- Microloans
- Crowdfunding
What to do after your loan application gets denied
If your SBA loan application gets denied, take the opportunity to improve your odds in the future. Some steps to take after loan denial include:
- Review the denial reason carefully
- Improve your financial profile
- Organize and update documents
- Refine your funding request
- Consider reapplying once conditions improve
The path to more funding starts with an SBA loan application. See if you pre-qualify today.
