Why Was My SBA Loan Declined? What To Do After A Denial | Nav

The SBA loan is one of the most popular loan options for small businesses, but it isn’t for everyone. There are various reasons why your SBA loan application could be declined, from your credit score to your cash flow.

SBA loans are highly sought after by small business owners because they offer some of the most competitive interest rates on the market and up to $5 million in funding.

However, these favorable terms come with a catch: The SBA’s strict eligibility requirements mean many businesses won’t qualify for its financing.

Why the SBA Turns Down Loan Requests

There are many reasons why an SBA loan may be declined. These include:

  • Poor credit history, 
  • Not enough cash flow to repay the loan, 
  • Insufficient collateral to secure the loan, or 
  • A lack of experience in the field of business you plan to enter.

Your SBA loan application might have been declined because you failed to meet one or more of these general requirements:

  • A minimum credit score of 620 (680 is recommended)
  • Debt service coverage ratio (DSCR) of 1.25 or higher
  • An ability to repay the loan in three years or less
  • At least two years in business or at least two years of industry experience

If your SBA loan application was declined, you should consider applying for a small-business loan from another lender, especially if your application was denied because you do not have enough equity to qualify for an SBA loan. 

While there are ways for borrowers with little or no equity to get approved for an SBA loan, it can be difficult and time-consuming.

What Next if the SBA Rejects You?

Receiving an SBA loan rejection notice can be discouraging, but here are some steps you can take to improve your chances on your next try.

1. Review the rejection letter and compare it to the SBA’s eligibility requirements.

2. Work on improving your credit score by paying down outstanding debts, disputing erroneous information on your credit report, and restricting yourself to only one or two new credit inquiries in a year.

3. Consider alternative funding options such as friends and family loans, home equity loans, peer-to-peer lending, angel investors, or crowdfunding.

Last Words

Business owners should understand all the eligibility requirements before applying for a loan with the Small Business Administration. Knowing what the SBA expects helps you manage your expectations regarding the pending loan request.

Author bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.