There are red flags that cause that provide Reasons SBA Loans Get Denied, and we can help you avoid them. For many Oklahoma entrepreneurs, securing an SBA loan—especially the SBA 7(a) loan—is the most accessible path to purchasing an existing business. These loans offer favorable terms such as long repayment periods, low down payments, and competitive interest rates.
But not every loan application is approved. In fact, SBA loans often require more documentation and stricter underwriting than conventional bank loans. Understanding the most common reasons SBA loans are denied can help you avoid pitfalls and strengthen your application.
Below are the key issues that commonly derail SBA loan approvals for business purchases.
Insufficient Cash Flow to Support the Loan
The number one reason SBA Loans Get Denied is that the business being purchased cannot generate enough cash flow to cover. It is essential that you can show the SBA that you have adequate funds to meet the cash flow demands of the business. This includes cash flow needed to pay the owner’s salary and to meet all tax obligations. They will also need to see that the cash flow generated by the business is enough to cover the SBA loan payment itself. Seller’s discretionary earnings
If the business’s income is inconsistent, declining, or artificially inflated by the seller, the loan may be rejected. I recommend that my clients have a CPA or business law attorney in Tulsa review the business financials before applying. Many Oklahoma buyers discover issues during due diligence—not after closing.
Poor Personal Credit or Financial History
Even though SBA loans finance business purchases, your personal creditworthiness is critical. Some reasons SBA loans get denied often include a low credit score for the prospective buyer or other problems that show up on simple credit reports. Other reasons for a possible denial include unpaid tax debts or other unresolved judgments and liens.
Like other lenders, the SBA expects borrowers to demonstrate responsible financial behavior and the ability to manage debt.
Lack of Relevant Experience
Lenders want confidence that the buyer has the skill and background to successfully manage the type of business being purchased. Denials are common when the person applying for the loan has little or no experience in the industry they are buying a business. If the lender doubts your experience or your ability to effectively transition into ownership they may deny the SBA loan.
Problems with the Business’s Financial Records
Just like the SBA looks at your creditworthiness and ability to make the business proper, they also look closely at the business you are trying to buy. Missing documentation provided by the business is a red flag. The SBA will look for inaccurate or incomplete financial statements, unverified cash sales, or other shady types of things that call the viability of the business itself into question.
The SBA and other lenders need consistent, verifiable financials—not estimates or rough drafts. Oklahoma buyers should require complete business records before signing a purchase agreement.
Overvalued Purchase Price
The SBA requires a formal business valuation, and the lender must confirm that the business is being purchased for a reasonable price. A loan is often denied when the price the seller is asking exceeds the value of the business. Other reasons might be that the cash flow doesn’t justify the proposed value of the business.
Lenders will not finance a business for more than it’s objectively worth. It situations when the valuation is a question or the cash flow isn’t up to what it should be the SBA may require the borrower to pay an additional down payment to meet the difference.
Inadequate Down Payment or Working Capital
Even with SBA financing, buyers must contribute their own capital—usually 10% to 20%. Loans may be denied when the buyer cannot document personal liquidity and proof of funds to move the business successfully.
Issues with the Purchase Agreement
Your purchase contract must meet SBA requirements, including a detailed allocation of purchase price, clarity on assets included, and seller transition plans. Loans can be denied when the agreement is missing material terms and is vague as to assets and or liabilities of both the business and the potential borrower.
An attorney familiar with SBA-financed acquisitions should draft or review the agreement before submission.
Unresolved Legal or Tax Issues
Lenders routinely deny SBA loans when the buyer or seller has unresolved legal or compliance problems, including pending lawsuits and unpaid payroll and sales taxes. Other unresolved issues that hurt both buyer and seller involve prior bankruptcy filing and other zoning or issues related to regulatory problems.
Insufficient Collateral (in Some Cases)
While SBA loans do not always require full collateral coverage, lenders must take available collateral. Problems arise when:
- No meaningful collateral exists
- The business assets are over-encumbered
- Existing liens cannot be cleared before closing
Lenders may deny the loan if the borrower refuses to pledge available collateral, even if it’s personal property.
How to Avoid SBA Loan Denials When Buying a Business
Working with an experienced Oklahoma business attorney and CPA can significantly reduce the chance of denial. A coordinated professional team can help you:
- Review and verify the seller’s financials
- Ensure the purchase agreement meets SBA requirements
- Structure the deal properly
- Prepare the business plan and financial projections
- Resolve legal or tax issues before submitting the application
- Communicate with the SBA lender during underwriting
Need Help With an SBA-Financed Business Purchase in Oklahoma?
There are many Reasons SBA Loans Get Denied, and this is where we come in. Our Tulsa County business law attorneys assist clients throughout the state. Our Oklahoma attorneys help with all aspects of the sale and its financing. This includes, but is not limited to, the SBA 7(a) loan application itself and all the supporting documentation designed to help you achieve your business assistance goals. For a free consultation with a business law attorney at Tulsa County Lawyers Group, call 918.379-4864. Or you can ask a free online legal question by following this link..
