Why SBA Loans Get Denied
Common Denial Reasons and How to Respond
Understanding SBA Loan Denials
Receiving an SBA loan denial can be frustrating, especially when the reason is unclear. The SBA uses multiple criteria to evaluate applications, and failure to meet any single requirement can result in denial.
This guide covers the most common reasons for SBA loan denials across different programs, including EIDL, 7(a), and disaster loans.
Estimated denial rate for SBA disaster loan applications during high-volume periods
Credit-Related Denials
Unsatisfactory Credit History
The SBA reviews personal credit for business owners. While specific score requirements vary by program, generally a FICO score below 570 to 620 may result in denial for disaster loans. Bank-mediated loans (7a, 504) typically require higher scores.
Note: The SBA looks at credit history, not just the score. Bankruptcies, foreclosures, or patterns of late payments can be disqualifying.
Outstanding Federal Debt
If you owe money to any federal agency (unpaid taxes, student loans in default, previous SBA loans), your application may be denied or held until those debts are resolved.
How to Address Credit Issues
If denied for credit reasons, request your credit report and identify specific negative items. The SBA reconsideration process allows you to explain circumstances (medical issues, temporary setbacks) and demonstrate current creditworthiness. Providing a written explanation with supporting documentation can change the outcome.
Business Eligibility Denials
Ineligible Business Type
Certain business types are not eligible for SBA loans. This includes businesses primarily engaged in lending, gambling, pyramid schemes, or illegal activities. Some programs have additional restrictions.
Business Not in Operation
For disaster loans and COVID-related programs, the business must have been in operation before the disaster date. New businesses started after the qualifying date are not eligible.
Insufficient Economic Injury
For EIDL and disaster loans, you must demonstrate that your business suffered economic injury from the declared disaster. If your business was not affected or cannot document the impact, your application may be denied.
Documentation Denials
Incomplete Application
Applications missing required information or documents may be denied rather than held for completion. This is especially common during high-volume periods when the SBA is processing applications quickly.
Unable to Verify Information
If the SBA cannot verify information you provided (business address, ownership, tax filings), your application may be denied. This often occurs when business records with the IRS do not match application information.
Insufficient Documentation of Loss
For disaster loans, you must document the physical damage or economic injury. Estimates, photos, and financial records showing the before and after impact are required.
How to Address Documentation Issues
Review your application carefully before submitting. Ensure all documents are legible and complete. If denied, request a detailed explanation of what was missing or unclear. The reconsideration process allows you to submit additional documentation.
Repayment Ability Denials
Insufficient Cash Flow
The SBA evaluates whether your business can repay the loan while continuing operations. If your financial statements show insufficient revenue or excessive existing debt, you may be denied.
No Collateral (for larger loans)
While smaller disaster loans may not require collateral, larger loans typically do. If you cannot offer adequate collateral, the loan amount may be reduced or denied.
The Reconsideration Process
If your SBA loan is denied, you typically have the right to request reconsideration. The process varies by program but generally involves:
- Requesting the denial letter in writing (if not already received)
- Reviewing the specific reason(s) for denial
- Gathering documentation to address each denial reason
- Submitting a formal reconsideration request to the designated email address or portal
- Waiting for the reconsideration review (can take 30 to 90 days)
Tips for Successful Reconsideration
Be specific in addressing each denial reason. Do not simply resubmit the same information. Provide new documentation or explanations that directly respond to the stated concerns. A well-organized reconsideration package that makes it easy for the reviewer to find the information they need is more likely to succeed.