If you were denied during the business loan process, don’t panic — you’re not the only one. Nearly 20% of all small business loan applications are rejected due to several factors, like insufficient business or personal credit history. While being denied may seem like a setback, it’s an opportunity to set your business up for success.

Here are three steps you can take to help fix your loan application. 

1. Find out why you were denied.

Understanding why you were denied a loan is the key to raising your approval odds down the line. There are a few primary reasons that you could have been denied:

• Low credit score: If you have a low credit score, whether it’s your personal or business credit, getting approved for a small business loan may be challenging.
• High debt/lack of cash flow: If you have a high amount of debt or lack of cash flow, it could be difficult to repay your existing debt along with any new business loans. Lenders want to ensure applicants have enough income to cover loan payments and other expenses associated with owning a business (e.g., vendor payments, payroll, or supplies). For the best outcome when applying for loans, business owners should aim to have a debt service ratio (DSR) of at least 1.25 and steady cashflow.
  • Debt service ratio is a credit metric used to measure a company’s ability to meet debt obligations using cash from incoming sales. In this case, a DSR of 1.25 indicates that a business can cover the existing debt 1.25 times with sales revenue.
• No business checking account: With a business checking account, you can easily manage all the finances specific to your business. While not every lender will require a business checking account, most do.
• Not enough collateral: Anytime you apply for a small business loan, some lenders may require collateral to secure a loan. Eligible types of collateral include real estate, vehicles, or business inventory. You may be denied if your collateral assets don’t cover enough of the loan.
• Didn’t meet eligibility requirements: Every loan you apply for will have unique eligibility requirements. These range from how long your business has operated to the amount of revenue your business is generating. Make sure you carefully read over the eligibility requirements to ensure you comply with them.

2. Explore alternative lenders.

Being denied by one lender doesn’t mean you will be rejected from all. Understanding why a lender didn’t approve your application will help you evaluate other loan opportunities that may be better suited for you. For instance, the U.S. Small Business Association (SBA) provides small businesses with loans that have unique benefits, such as lower payments and flexible requirements. They even have a Lender Match resource allowing borrowers to input information specific to their business to get matched with targeted lending opportunities. Additionally, FirstBank finances SBA 7(a) and SBA 504 loans* under the SBA Preferred Lender program. Speaking with your banker or business consultant/financial advisor is important to better understand your options.

3. Apply for the loan again.

While there is usually a waiting period before reapplying, typically 30 to 90 days, it’s still worth investigating. During that time, you can improve your business loan application to increase the likelihood of approval. This may include updating your business plan or assessing debt levels to meet the lender’s requirements.

Ultimately, starting a business is a challenge, but it is worth it to see your entrepreneurial dreams come true. For more business-related tips, visit our Business Success page at efirstbankblog.com.

*Subject to Approval.

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Published: April 17, 2025