Why Was My SBA Loan Declined (Reasons + Next Steps)?

If you run a small business, then you will know that SBA loans are one of the best options available if you are looking for finance.

They are government funded so readily available, and come with excellent rates and wonderful repayment terms. But, obtaining an SBA loan is actually a lot more difficult than you might expect.

The SBA are very selective about whom they give their money to. This is partly because they have so many applications every day, so it would be impossible for everyone to have their application accepted. But there are also many other reasons why the SBA might decline your application.

In this guide, we’ll be taking a look at why your SBA loan might have been declined. We will also be looking at the next steps you should complete once your loan application has been refused. So let’s jump in.

Why Was my SBA Loan Declined?: Possible Reasons

When you first receive notification that your SBA loan has been declined, it can be rather disheartening. Applications are not an easy process, they take a lot of time and effort, so when you find out that it was all for nothing it can be a real blow.

It can be easy to immediately assume that you are the problem, but you shouldn’t jump to this right away. There are lots of different reasons why your application might have been declined, and these are not necessarily because of issues on your part. So don’t panic.

Most banks offer business loans, including the SBA loan, so you might assume that these applications are regularly accepted. But this isn’t the case. In fact, most large banks have an acceptance rate of only 25%. If you do find that your SBA loan application has been declined, it is very important to figure out the reason behind this.

Here are some of the most common reasons why SBA loan applications are declined:

  • Insufficient Collateral offered by the applicant - remember, most SBA loans will require 20-30% of the total loan amount to be put forward as collateral. 
  • Incorrect information given on the application - if you have given incorrect information on your application, knowingly or unknowingly, then this could cause your application to be rejected. 
  • Issue with Character - the SBA screens for criminal records and prior financial issues you may have experienced, so this could cause your application to be declined. 
  • Poor Credit Score - if you have a poor credit history, then this could cause your application to be declined, especially if you have any red flags such as bankruptcies or defaults. 
  • Low Capacity for Loans - all banks will have a quota of loans that they can accept, your application might be rejected simply because the bank has accepted too many loans that day already.

The Next Steps

There’s no denying that getting that rejection letter from the SBA hurts, but there is no need to panic. It can seem like a massive step backwards, but there is no need for it to be. In fact, it is very easy to get yourself back on track. Here’s what you should do next when your SBA loan application gets rejected.

1. Find Out Why

The first thing that you need to do is figure out why your application was rejected. Knowledge is key, so if you find out why you were rejected, you will know what changes you need to make in order for your next application to be accepted. 

You might expect it to be difficult to find out why your application was rejected, but this is actually a fairly easy task.

When your SBA loan application is rejected, you are entitled to something called a written letter of explanation. As its name suggests, this document is a written letter that will explain the reasons that led to your application being rejected.

This letter might come from the SBA itself, but more likely it will come from the bank with which you applied. By reading this letter, you will be able to find out the exact reason why your application was declined. This will allow you to work on your application and identify the areas where changes need to be made if you want future applications to be accepted.

2. Work on your Application

Once you have identified the reason behind the rejection, you will know how to improve your application going forward. All lenders will have very strict guidelines for accepting applications, and the SBA is no different, so getting your loan accepted requires you to tick the necessary boxes.

When your application is rejected, you cannot reapply until 90 days have passed since your rejection. If you do apply during this time, you will be rejected, as the computer system that manages SBA loans will not recognize any differences in your application.

In the meantime, you should work on strengthening your application. You will know the areas you need to work on, as they would be outlined on the letter of explanation.

This might mean improving your personal or business credit score, and working on your finances. It might also mean exploring other options for collateral. Whatever the reason, take the 90 days to work on making your application even stronger.

3. Consider Other Options

Now, waiting 90 days is not possible for all businesses. We understand that. Unfortunately, if you cannot wait 90 days, you will need to explore the other loan options that are available to you.

The best option will depend on the amount that you are looking to borrow. If you only want to borrow a ‘small’ amount, then you should consider online lenders.

If you were looking to borrow a large amount instead, try hard money loans. While the SBA loans are a great choice for businesses, they aren’t the only option available to you, and it is important that you remember this.


In short, there are lots of reasons why your SBA loan might have been rejected, we have outlined these above. But to find out the specific reason, you should look at your letter of explanation.

By reading this, you will be able to identify where your application went wrong, and what you need to do to make future applications stronger. 

Leave a Comment

Your email address will not be published. Required fields are marked *