What are common reasons an SBA loan gets declined?
Short answer
SBA's rules point to weak cash flow, ineligible businesses, credit available elsewhere, unfiled tax returns, prior federal losses and past-due federal debt. We found no SBA ranking of decline reasons, and lender standards vary. Sources: SOP 50 10 8.1, Sec. A and Sec. B, Ch. 1, Para. C.
SBA's rules name specific situations that end an application. We found no SBA ranking of decline reasons, and its public loan file lists approved loans only.
Repayment
If the lender's analysis shows no reasonable assurance of repayment from business cash flow, the loan must be declined. That holds regardless of collateralProperty a lender can take and sell if a loan is not repaid. or outside repayment sources (SOP 50 10 8.1, Sec. B, Ch. 1, Para. C, p. 118). Coverage below 1.15:1 fails the Standard 7(a) test.
Eligibility
- The business type is ineligible (13 CFR 120.110).
- An owner or required guarantor is an Ineligible Person under the citizenship rule (Sec. A, Ch. 1, Para. F).
- The business is not small under SBA size standards (13 CFR 120.100).
- An Associate is incarcerated or under certain indictments (13 CFR 120.110(n)).
Need for the loan
If the deal meets the lender's conventional standards, the project is not eligible. The test also looks at cash held by owners of 20% or more (Sec. A, Ch. 1, Para. H, p. 37).
Government debts and filings
- Required federal tax returns were not filed (Sec. A, Ch. 5, Para. B.2).
- A prior loss to the government or delinquent federal debt (Sec. A, Ch. 1, Para. E).
- An existing 7(a) or 504 loan that is not current (Para. E).
Insurance
If required hazard insurance is not available, the loan cannot be approved (Sec. A, Ch. 5, Para. C.1).
Lender policy
Lender credit policies vary, so a deal that meets SBA's minimums can still be turned down.
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