Why You Got Denied for a Business Loan (And What to Do Next)

Getting denied for a business loan is frustrating and often confusing. Lenders rarely explain exactly why you were declined, leaving you to guess what went wrong.

The good news: most denial reasons are fixable, and different lenders have different criteria. A denial from one lender does not mean denial from all. This guide explains the most common reasons for denial, how long each takes to fix, and exactly what to do next.

Reason 1: Insufficient Cash Flow

The most common denial reason. Lenders calculate your Debt Service Coverage Ratio (DSCR) — how much cash flow you have available to make loan payments. Most require DSCR of 1.15x-1.35x minimum.

What this means: If your business generates $10,000/month in net operating income and you have $6,000 in existing debt payments, you have $4,000 available for new debt. If the loan you applied for requires $5,000/month, your DSCR would be 0.8x — not enough.

Cash Flow Fix

Request a smaller loan amount or longer term to reduce monthly payments. A $150K loan over 3 years costs ~$5,000/month; the same loan over 5 years costs ~$3,200/month.

Recovery Timeline: Cash Flow

Situation	Fix	Timeline
Payment too high	Apply for smaller amount or longer term	Immediate — reapply now
Revenue too low	Grow revenue, then reapply	3-6 months of improved numbers
Existing debt too high	Pay down current debt	Depends on payoff timeline
Seasonal low period	Wait until stronger months show in statements	3-6 months

Reason 2: Low Credit Score

Different loan products have different credit thresholds. If your score falls below a lender's minimum, you will be automatically declined regardless of other factors.

Loan Type	Minimum Score	Preferred Score
SBA 7(a)	650-680	700+
Bank Term Loan	680-700	720+
Online Term Loan	600-650	680+
Equipment Financing	600+	680+
Invoice Factoring	550+	600+
MCA	500+	580+

Important note on SBA loans: The 650-680 minimum range is what most SBA lenders require, not 680+ as sometimes stated. Some community-focused SBA lenders will consider scores as low as 620 with strong cash flow and collateral.

Recovery Timeline: Credit Score

Issue	Fix	Timeline
High credit utilization (>30%)	Pay down balances	1-2 billing cycles (30-60 days)
Credit report errors	Dispute with bureaus	30-45 days
Recent late payments	Make on-time payments, wait	6-12 months for impact to fade
Collections accounts	Pay/settle for deletion	1-3 months after deletion
Bankruptcy	Wait for discharge + rebuild	2-4 years for SBA; less for alternatives
No credit history	Build history with secured cards/trade lines	6-12 months

Fastest Credit Fixes

Paying credit cards below 30% utilization can boost your score 20-50 points within 1-2 months. This is often the fastest path to crossing a threshold.

Reason 3: Insufficient Time in Business

Lenders use time in business as a proxy for stability. Younger businesses have higher failure rates, making them riskier to lend to.

Time in Business	Available Products
Under 6 months	Very limited: personal loans, some microloans, credit cards
6-12 months	MCAs, revenue-based financing, some equipment financing
1-2 years	Online term loans, lines of credit, equipment financing, some SBA
2+ years	Full range including SBA, bank loans, and best rates

Recovery Timeline: Time in Business

This is the one factor you cannot accelerate. If you were denied for insufficient operating history:

Less than 6 months: Focus on building revenue and credit. Consider personal loans if needed.
6-12 months: Try revenue-based options or MCAs if the cost makes sense. Otherwise, wait.
Close to a milestone: If you are 1-2 months from 1 year or 2 years, wait for the milestone.

Pro tip: If you are at 10-11 months, wait until you can file your first full-year tax return. That documentation significantly improves your options.

Reason 4: Too Much Existing Debt

Even if your cash flow is technically sufficient, too much existing debt raises red flags. Lenders worry about overextension and want cushion for unexpected challenges.

Debt-to-revenue ratio: Most lenders want total debt (including the new loan) below 40-60% of annual revenue
Multiple existing loans: Having 3+ active business loans signals potential trouble
Stacked MCAs: Multiple MCAs are often disqualifying — it suggests desperation
High personal debt: Personal DTI above 45% affects business loan approval

Recovery Timeline: Existing Debt

Situation	Fix	Timeline
One large loan	Pay down 20-30% of balance	Depends on payoff speed
Multiple small loans	Consolidate or pay off entirely	3-6 months typical
Stacked MCAs	Pay off completely before applying	Complete MCA terms
High credit card debt	Pay below 30% utilization	1-3 months

Reason 5: Documentation Problems

Incomplete or inconsistent documentation kills many applications that could otherwise be approved.

Missing documents: Bank statements, tax returns, or financials not provided
Inconsistent numbers: Revenue on application does not match bank statements
Unverifiable information: Business or owner information cannot be confirmed
Incomplete tax returns: Missing schedules or pages
Messy financials: Books are so disorganized lenders cannot evaluate

Recovery Timeline: Documentation

Documentation issues are usually fixable immediately:

Gather complete bank statements (all pages, all months requested)
Ensure reported revenue matches bank deposits
Get professional financial statements if your books are messy
Obtain complete tax return copies from your CPA or the IRS

Documentation Fix

If denied for documentation issues, you can often reapply immediately once you have complete, consistent documents. Ask the lender exactly what was missing.

Reason 6: Wrong Loan Type for Your Need

Sometimes applicants are denied because they applied for the wrong product, not because they are unfundable.

Need	Wrong Product	Right Product
Working capital	SBA 7(a) (too slow)	Line of credit or term loan
Equipment purchase	Unsecured term loan	Equipment financing (better rates)
Real estate	SBA 7(a)	SBA 504 or commercial mortgage
Seasonal inventory	Term loan (fixed payments)	Line of credit or revenue-based
Emergency cash	Bank loan (too slow)	Online lender or MCA

Reason 7: Industry or Business Type Issues

Some industries face lending restrictions that have nothing to do with your specific business quality.

Restricted industries: Cannabis, gambling, adult entertainment, firearms — most mainstream lenders will not consider
High-risk industries: Restaurants, bars, construction — require stronger profiles to offset perceived risk
Regulated industries: Healthcare, financial services — may need specialized lenders who understand compliance
Seasonal businesses: Require lenders comfortable with variable cash flow

If denied due to industry, you need to find lenders who specialize in your space. We work with lenders across many industries and can often find options.

Your Action Plan After Denial

Here is exactly what to do when you receive a denial:

Step 1: Get the Reason in Writing (Day 1)

Call the lender and ask for the specific denial reason
Request it in writing (email is fine)
If they cite "credit," ask which bureau and what specific issue
If they cite "cash flow," ask what DSCR they calculated
Document everything for your records

Step 2: Verify the Information (Days 2-3)

Pull your credit reports from all three bureaus (free at AnnualCreditReport.com)
Check for errors that may have caused the denial
Review your bank statements — does revenue match what you reported?
Calculate your own DSCR to verify lender's assessment

Step 3: Create a Fix Plan (Days 4-7)

Based on the denial reason, create a specific action plan:

Denial Reason	Immediate Action	Next Application
Low credit score	Pay down credit cards, dispute errors	Wait 30-60 days for score improvement
Insufficient cash flow	Review if smaller amount works	Try again with adjusted request or different lender
Too little time in business	Consider alternative products	Wait until milestone (1 year, 2 years)
Too much debt	Create payoff plan	Reapply after reducing debt load
Documentation issues	Gather complete docs	Reapply immediately with complete file
Industry restriction	Find specialized lender	Apply to industry-specific options

Step 4: Consider Alternative Lenders (Week 2)

Different lenders have different criteria. A denial from a bank does not mean:

SBA lenders — Different SBA lenders have different risk tolerances
Online lenders — Often more flexible on credit and time in business
Credit unions — May consider relationship factors banks ignore
CDFIs — Community development lenders focus on underserved markets
Equipment lenders — Equipment as collateral allows more flexibility
Invoice factors — Your customer's credit matters more than yours

Wait Between Applications

Do not immediately apply to 10 more lenders. Each application may trigger a hard credit pull. Space applications out, target appropriately, and apply strategically.

Step 5: Track Progress and Reapply (Ongoing)

Monitor credit score monthly
Track bank statement quality (no NSF, positive balances)
Document revenue improvements
When metrics improve, return to the market stronger

Working With Liminal After Denial

If you were denied elsewhere and are considering Liminal, here is what to know:

We work with 75+ lenders — Different criteria than whoever denied you
Soft pull only — No additional credit damage from exploring options
Honest assessment — We will tell you if you should wait or what to fix
Multiple matches — See all your options at once, not one rejection at a time

A denial from one lender does not mean denial from all. Many business owners get approved on their second or third application — often within weeks of a denial elsewhere. The key is understanding what went wrong, fixing what you can, and matching with the right lender for your profile.