SBA loan approval rate

If you applied for an SBA loan and it was denied, it’s not the end of your SBA process. There are several steps you can take if your SBA loan application wasn’t approved, which range from reapplying to finding a different source of funding. 

Find out why you were denied

The first step is finding out why your SBA loan was denied. You’ll receive a letter from your lender telling you that you were denied, but usually these letters don’t tell you why you were denied. You can always call the lender and ask them for specific information about why your SBA loan was denied. 

Common reasons for a declined SBA application

The most common reasons that an SBA loan application is denied include:

• Low personal credit scores
• Low business credit scores
• Poor or no credit history
• Not enough collateral
• Not enough demonstrated cash flow to make repayments
• Too much current debt
• Previous loan default
• Tax liens, judgments or bankruptcies
• Inability to demonstrate your need for the loan
• Operating in an industry that isn’t approved by the SBA
• You don’t meet the SBA’s definition of a small business

Some of these may be out of your control, such as not meeting the SBA’s definition of a small business or operating in an industry that isn’t approved by the SBA. But many of these issues can be fixed with time, work or both. 

Strengthen your application and reapply

In general, you can reapply for an SBA loan 90 days after you were initially denied. But it’s important to make sure that you understand why you were denied and make corrections. 

Some issues with your application will not be correctable. For instance, if you don’t qualify as a small business due to your annual revenue being too high or having too many employees, you probably won’t want to reapply for an SBA loan. The same is true if you operate in an industry that the SBA doesn’t lend to, such as gambling, property speculation or loan repackaging. 

However, if your credit score was too low or you had insufficient cash flow, you can spend three months working to fix these issues and reapply. You can also strengthen your application by writing a better business plan and better demonstrating what you intend to do with the loan. This can help the SBA and its approved lenders understand why you need the money and how you’ll make enough money using the loan to pay it back – and more. 

Cash flow is another important factor that lenders consider when determining whether or not to approve your SBA loan application. It’s true that you may not be able to control business or increase your sales, but there may be ways you can clean up your business accounting to help improve your cash flow. It’s a good idea to work with an accountant to find ways to improve your business’s numbers. You may also want to invest in marketing to improve sales in a proactive way. 

You may also want to consider trying a different lender. Again, big banks approve fewer SBA loans than small banks overall, so finding a local bank or credit union may be a better option for you if your SBA loan application was denied by a bigger financial institution. If you have an existing relationship with a small bank, including wherever you do your personal banking, they may be able to give you a better approval rate. At the same time, smaller banks also may have more hands-on application processes, including an account representative who can walk you through the process and help make sure you’ve followed the application rules to the letter. 

Review your credit score and personal credit

It’s important to understand how your credit score and personal credit history impact your loan application. Credit scores are the number one way that lenders determine your creditworthiness, meaning how likely you are to be able to pay back the loan. Your credit score is based on information such as:

• How long your credit history is
• How much debt you have compared to your income (debt to income ratio)
• How often you make monthly payments on time 
• How often you apply for new credit (including loans and credit cards)
• How many credit accounts you have

Your business can also have a credit score, which is based on similar criteria, but for your business instead of your personal credit. This can include how often you repay vendors on time, what kind of assets you have (including money in the bank, investments, real estate or equipment) and how long you’ve been in business. 

You can improve both your business credit score and your personal credit score by paying down debt, making sure you don’t miss payments and making all payments on time. In fact, simply waiting a few months can improve your credit score, as hard checks on your credit fall off and you pay down debt and build history. Credit history may not be built overnight, but with some patience and work, you can improve your credit scores, even in as little as 90 days.