What Can Disqualify You From Getting an SBA Loan?
At Small Business Funding, we see the reasons businesses are turned away every day. Many of these issues can be fixed — or worked around — if you know how to approach them.
Personal and Business Credit Issues
SBA lenders expect strong personal and business credit. You may be disqualified if:
- Your personal credit score is very low (commonly below 650)
- You have recent bankruptcies, foreclosures, or unpaid tax liens
- Your business has a history of late payments or defaults
- Your business has little to no positive cash flow, or negative cash flow
TIP: Even if your credit is weak, we know lenders who focus more on cash flow. We help position your file with the lenders most open to your profile.
Past Defaults on Federal Debt
If you have defaulted on federal obligations in the past, you may be automatically disqualified. This includes:
- Defaulting on federal student loans
- Defaulting on past SBA loans
- Unpaid federal debts that remain unresolved
TIP: If you have a past default, we help you show lenders what has changed and whether repayment or settlement can restore eligibility.
Federal Tax Delinquency
Applicants with outstanding federal tax debt are often denied. Lenders want proof that your taxes are current before they approve a loan.
TIP: We guide you on documenting repayment plans or settlements so a tax issue does not block your application.
Insufficient Cash Flow or Debt Coverage
Lenders want to see that your business generates enough income to cover loan payments. You may be disqualified if:
- Cash flow is inconsistent or negative
- Your debt service coverage ratio (DSCR) is below 1.15 (income doesn’t cover obligations)
- Your projections are unrealistic or unsupported
TIP: We help build clear financial projections and highlight add-backs that can make your cash flow stronger on paper.
Lack of Collateral or Personal Guarantee
SBA loans often require collateral or a personal guarantee from any owner with 20% or more equity. You may be disqualified if:
- You are unwilling to sign a personal guarantee
- You cannot pledge available assets when required
- You refuse to provide documentation on collateral
TIP: We explain collateral options and show lenders the full picture so you are not declined for something that could have been clarified.
Ineligible Business Types
Some businesses cannot qualify for SBA loans under any circumstances. These include:
- Nonprofits
- Businesses engaged in lending or speculation (e.g., real estate investment firms)
- Pyramid sales or multi-level marketing companies
- Illegal activities or businesses operating outside U.S. law
TIP: If your business type is restricted, we can help explore alternative funding options that fit your model.
Immigration and Residency Requirements
To qualify for an SBA loan, owners must be U.S. citizens or lawful permanent residents. If the majority owner cannot prove legal residency, the application will be denied.
TIP: We help verify eligibility early in the process so you do not waste time applying if ownership does not meet SBA requirements.
Equity Investment Requirements
SBA lenders want to see that owners have invested in the business. Applications may be denied if:
- Owners have not contributed personal equity
- Owners are unwilling to take financial risk in the business
TIP: We highlight your equity contribution and show lenders your financial commitment to the business.
Franchise Documentation
If you operate a franchise, you must provide the Franchise Disclosure Document (FDD) and SBA Franchise Addendum. Missing these can disqualify your application.
TIP: We collect the franchise paperwork lenders expect so your file moves forward without delay.
Criminal History or Legal Issues
Certain criminal records or ongoing legal problems can disqualify an SBA loan application. You may be denied if:
- You are currently on parole or probation
- You have recent felony convictions related to financial crimes
- You fail to disclose past charges when required
TIP: We review your background forms and make sure nothing is overlooked. Transparency gives you a better chance of approval.
Problems With Documentation
Missing or inconsistent documents often lead to disqualification. Lenders may reject your application if:
- Business tax returns or financial statements are missing or outdated
- SBA forms are incomplete or unsigned
- Your documents show major inconsistencies that raise questions
TIP: We audit your file before submission to make sure lenders see a complete and accurate package.
SBA Eligibility Rules
The SBA requires every borrower to meet its basic rules. You may be disqualified if:
- Your business is too large for SBA size standards
- You can easily access credit elsewhere and do not meet the “credit elsewhere” rule
- Your business is not for-profit, not U.S.-based, or does not meet SBA definitions
TIP: We confirm eligibility before submitting so you do not waste time applying for a loan you cannot get.
Temporary vs Permanent Disqualifiers
Not all disqualifiers last forever. Some, like ineligible business types or immigration status, are permanent. Others—such as credit problems, cash flow weakness, or documentation issues—can often be fixed over time.
TIP: We help you understand whether your issue is permanent or temporary, and if there’s a path to approval in the future.
Bottom Line
SBA loan disqualifiers can feel discouraging, but many are not permanent. Credit can be rebuilt, cash flow can be strengthened, taxes can be settled, and documents can be corrected.
If you are worried that one of these factors might disqualify you, don’t give up. Small Business Funding knows which lenders are most flexible and how to package your file for approval. With the right guidance, you still have a path to funding.
