Common Reasons SBA Loans Are Denied—and How to Avoid Them
- Mark Hartmann
- 2 hours ago
- 3 min read
Why Sellers Should Care About SBA Loan Denials
If the buyer can’t secure financing, they can’t buy your business. A denial means lost time, lost momentum, and potentially lost value. Many SBA loan denials are avoidable with the right preparation.
1. Inaccurate or Disorganized Financials
SBA lenders base decisions on clean, bankable financials. If your tax returns, P&Ls, and balance sheets don’t match or are full of unverified add-backs, the loan may be denied.
✅ Solution: Work with your CPA to prepare clean, normalized financials and ensure consistency across all documents.
2. The Buyer Doesn’t Qualify
Even a great business can’t sell if the buyer isn’t qualified. Credit issues, lack of experience, or insufficient liquidity can disqualify the deal.
✅ Solution: Vet buyers carefully, confirm they’ve been prequalified, and ensure they have relevant experience.
3. Aggressive or Unverifiable Add-Backs
Add-backs help normalize cash flow, but if they’re poorly documented or exaggerated, lenders may not trust your numbers.
✅ Solution: Provide receipts or explanations for each add-back, and avoid aggressive adjustments that can’t be verified.
4. Unrealistic Purchase Price or Valuation
If the business is priced above the appraised value, the SBA lender may not approve the full amount, forcing renegotiation.
✅ Solution: Get an SBA-compliant valuation early, and be open to price adjustments based on lender guidance.
5. Buyer-Company Mismatch
Lenders need to believe the buyer can run the business. If there’s no operational experience, that becomes a red flag.
✅ Solution: Match your business with buyers who have relevant or transferable experience, and build a solid transition plan.
6. Legal, Tax, or Compliance Issues
Unresolved tax liens, licensing issues, or lawsuits can stall or kill a deal.
✅ Solution: Do your own due diligence and resolve any compliance issues before going to market.
7. Ineligible Business Type or Structure
SBA won’t fund certain businesses (like nonprofits or cannabis-related firms) and requires 100% change of ownership.
✅ Solution: Confirm your business and deal structure meet SBA criteria early in the process.
8. Key-Person Risk or Customer Concentration
If your business relies too heavily on you or a single customer, lenders may see it as too risky.
✅ Solution: Build a team, diversify clients, and prepare a thoughtful transition plan that reduces dependency.
Bonus: Slow Response Times Can Sink a Deal
Delays in communication or document delivery can drag deals down and frustrate lenders.
✅ Solution: Set expectations early, work from a checklist, and keep all parties accountable.
Final Thoughts: How to Keep the Deal (and the Loan) on Track
SBA loans are an excellent tool, but only if you’re prepared. Financial cleanup, realistic pricing, and proper buyer vetting can prevent deal-killing issues before they start.
Selling Your Business to an SBA-Backed Buyer?
We’ll help you navigate the SBA process, structure a strong deal, and get to closing without surprises.
Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.
Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).
44 Washington Street, Unit #1080
Morristown, NJ 07960
Partner with HartmannRhodes, expert business brokers and M&A advisors, to strategically navigate your business sale—maximizing value and ensuring a smooth transition. Reach out for tailored business sale strategies. Contact us today!
Common Reasons SBA Loans Are Denied—and How to Avoid Them