SBA loan approval rate

Loans through the U.S. Small Business Administration (SBA) are popular because they offer attractive interest rates and repayment terms.

Because they’re so popular, only about half (52%) of all SBA loan applications are approved. Learn more about the SBA loan approval rate and steps you can take to help get your application approved.

Kat Cox

Page written by Kat Cox. Last reviewed on August 12, 2024. Next review due October 1, 2025.

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What is the average SBA loan approval rate?

The SBA doesn’t put out straightforward information about how many business loans are approved or denied, but it is common knowledge that their approval rate is lower than other types of financing. As of July 2023, the SBA 7(a) and 504 Lender Report included nearly 42,000 SBA 7(a) loans had been approved and over 4,600 SBA 504 loans had been approved for the year. However, they didn’t say how many small businesses had applied, so there’s really no way of knowing what their approval rates actually are. 

According to the Small Business Credit Survey 2019, slightly more than half (52%) of SBA loans are approved for the more than 2,000 businesses that they surveyed. This was the lowest approval rate of any type of loan or line of credit, including mortgages (69% approval rate), business loans (67%) and personal loans (55%). Many statistics say that large banks approve SBA loans at rates as low as 20-30%, while smaller banks approve SBA loans at around 40% or less. All this to say: SBA loan approval rates hover at half or below all loan applications that are submitted. 

One reason more small businesses aren’t approved for SBA loans is because the programs are so popular. There’s more competition for SBA loans, due to their excellent interest rates and favorable repayment terms. If over 48,000 loans were approved and we assume the approval rate is less than 50%, that means you’re competing with nearly 100,000 other small businesses! 

Another reason more small businesses don’t get SBA loans is that they didn’t meet the requirements such as credit score or time in business. Many small businesses aren’t prepared to provide the right collateral for the loan they’d like, or they can’t demonstrate a strong enough need for the loan.

How can I improve my chances of getting approved?

There are several ways you can improve your chances of having your SBA loan application approved:

  1. Double-check that you meet the requirements. Your credit score and business credit history are the biggest factors in any lending decision because they help lenders determine how creditworthy you are. The higher your credit score, the more likely you are to be able to repay the loan. Other requirements with SBA loans include that you meet the SBA’s definition of a small business, operate in the U.S. or its territories and that you operate in an approved industry. Different loan programs also come with different qualifications, and each lender will set their own as well. Do your research before you apply. 
  2. Make sure you have all the necessary documents and information. SBA loans tend to take longer than other types of financing applications because they’re more thorough. Gathering the documentation and information beforehand can save you a lot of time and make the process go more smoothly. Submitting a complete application the first time will also help increase your chances of being approved. 
  3. Find the right loan program for your small business and purposes. Different loan programs are catered to different types of small businesses and for different reasons. Your small business may be better suited to a microloan program than the SBA 504/CDC program, for instance. 
  4. Pick the right lender for your SBA loan. Each lender has their own requirements, but some are better suited to certain SBA loans than others. Some lenders focus on specific businesses such as construction or manufacturing. Also, smaller banks are more likely to approve SBA loans than larger banks, partially because they get fewer applications. 
  5. Have an accountant or other professional look over your application before you submit it. If you have an accountant, it’s a great idea to have them look over your application to make sure everything is in order before you submit it. Some lenders also have professionals available to guide you through the application and make sure everything is correct. 

What should you do if your SBA application has been denied?

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. 

Consider alternative lenders or products

If you really don’t qualify for an SBA loan or need funding quickly, you may consider other financing options. Many of these options will take less time than an SBA loan and can help you with specific financing goals. 

Invoice financing

Invoice financing is one of the most common options for businesses to get financing fast. In this scenario, you sell unpaid customer invoices to a company that will give you a cash advance for a portion of the value of the invoices. The invoices serve as collateral against the cash advance. You’ll collect the payment from the customer and pay the amount of the cash advance portion back to the company, plus fees. 

This is a great option for companies who need money fast but may operate in a seasonal way. However, fees can get high quickly, which can make invoice financing expensive. Also, if your customers don’t pay their invoices, you can be in big trouble. 

Equipment financing

For businesses that require equipment like farm tools, kitchen appliances, manufacturing equipment or even office furniture, equipment financing can be a good option. There are many lenders who deal in specific business equipment, such as restaurant equipment, tools or vehicles. In most cases, the equipment serves as collateral for the loan, which makes it easier to qualify for. 

You may also find that you’d rather lease equipment than buy it outright. This can open up opportunities to upgrade your equipment to more up-to-date technologies more often, and remove some of the risk of owning it yourself. Many equipment financing companies will offer leases, too. 

Commercial mortgages

If your business needs real estate or property, a commercial mortgage is a good option. Many larger banks and credit unions offer competitive rates for commercial mortgages, and they may not have the same limits as SBA loans (e.g. $5 million for SBA 7(a) loans or $5.5 million for SBA 504/CDC loans). There may also be fewer restrictions on how you can use the commercial mortgage loan than an SBA loan may have, so you may have more flexibility. 

Online lenders

Many small businesses, especially startups, turn to alternative lenders like online lenders to get financing fast. These lenders are usually new and have built their business specifically on helping small businesses that have trouble qualifying for SBA or traditional loans get the money they need. Typically they have very short application periods and funding time, meaning you can get your money very quickly.

However, because online lenders tend to lend to businesses that are considered riskier, their loans tend to be more expensive. This means that they have shorter repayment terms and higher interest rates than other types of financing. It’s important to make sure that you can repay any loan before you take it on, or you could do serious damage to your credit. 

Business credit cards

Many businesses that need money fast for purchases or to open up some cash flow can opt for a business credit card. While you generally can’t get as much money from a business credit card as a loan, it can help with smaller business purchases and financing. You can also use the credit card to help you build your credit card, as long as the card reports to the major credit bureaus. You may also be able to use a credit card to consolidate debt from other cards or loans with higher interest rates and pay those down in a single monthly payment. 

The only downside to credit cards is that they tend to have higher interest rates than loans, so it can be easy to run up a bill you can’t pay off. This is especially true if you have a lower credit score because you won’t qualify for lower rates or offers. As always, it’s important to understand just what you’re signing up for when you get a credit card or any type of financing, so you know what to expect and can plan your payments accordingly. 

Find the right funding for your business with Swoop

If you’re looking for funding, whether it’s an SBA loan or another type of financing, use Swoop to help. Simply download our app, answer a couple of questions and you’ll be on your way to finding the right small business financing for you, today. 

Written by

Kat Cox

As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.

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