SBA loans are a popular choice for small businesses due to their low interest rates and long repayment terms. However, the application process can be lengthy and paperwork-intensive. Before diving into your SBA loan application, it’s essential to understand the factors that could automatically disqualify your business from receiving one.
Here’s a rundown of key disqualifiers to watch out for:
1. Your Business Has Foreign Ownership
If your business is partially owned by a non-U.S. citizen, it could be automatically disqualified from receiving an SBA loan. Previously, businesses with at least 51% U.S. ownership were eligible, but changes to SBA 9 Things That Automatically Disqualify You From an SBA Loan guidelines in the first half of 2025 now require businesses to be 100% owned by U.S. citizens, nationals, or permanent residents.
Additionally, if you’re a U.S. citizen but your business is based overseas, you won’t qualify for an SBA loan. The SBA mandates that the business must be located within the U.S.
2. You Exceed Size Limits
The SBA defines a “small business” based on either employee headcount or annual revenue, but the specifics vary by industry. Each industry has a detailed set of size standards, and the SBA publishes a chart with these guidelines. To avoid disqualification, use this chart to determine if your business size exceeds the SBA’s thresholds for your industry.
3. You Run an Ineligible Business
Certain types of businesses are outright ineligible for SBA loans. Some of these include:
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Nonprofits
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Pyramid schemes (multi-level marketing or MLM)
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Illegal activities
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Adult entertainment businesses
To ensure your business type isn’t on the exclusion list, review the full list of ineligible business categories provided by the SBA.
4. You Have Excess Cash
The SBA requires that businesses applying for loans must demonstrate that they cannot obtain financing from non-government sources on reasonable terms. If your business or personal financial statement shows that you have substantial liquid assets (e.g., $500,000 in the bank), lenders may conclude that you can self-fund your project, making you ineligible for an SBA loan.
5. You Haven’t Been in Business Long Enough
To qualify for an SBA loan, businesses generally need to meet certain creditworthiness criteria. These typically include:
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Time in business: At least two years (you’ll need to provide two years of tax returns)
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Annual revenue: More than $167,000
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Personal credit score: At least 690
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SBSS score: A score of 165 or higher
If you haven’t reached the two-year mark or don’t meet these financial benchmarks, you might not be eligible for an SBA loan.
6. You Plan to Use the Funds for Business Taxes
The SBA has specific rules about how the loan funds can be used. One of the ineligible uses is using the loan for business taxes. If your intended use of the loan funds doesn’t align with SBA guidelines, you’ll be disqualified from applying.
7. You’re Going Through Divorce Proceedings
If your business is involved in any ongoing litigation—even personal matters like divorce proceedings—you might be disqualified from receiving an SBA loan. It’s best to wait until your legal issues are resolved before applying for financing.
8. You’ve Defaulted on a Government Loan
If you’ve previously defaulted on a government-backed loan (whether it was an SBA loan or another type), you will be automatically disqualified from applying for an SBA loan. The SBA typically requires that all prior loans be in good standing for approval.
9. You’ve Filed for Bankruptcy Three Times
If you’ve filed for bankruptcy three times or more, you’ll be automatically disqualified from receiving an SBA loan. While some lenders may overlook one or two bankruptcy filings, three bankruptcies are a hard limit for SBA loan eligibility.9 Things That Automatically Disqualify You From an SBA Loan
What to Do If You’re Disqualified
If any of these disqualifications apply to your business, don’t lose hope! There are still several paths to securing funding for your business:
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Explore traditional business loans: If you’ve never applied for a loan through a bank, check out our list of the best banks for business loans to see if you qualify.
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Consider alternative lenders: If you’re ineligible for an SBA loan, non-bank lenders can offer a variety of business loan options with less strict requirements.
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Bad credit? If you don’t meet the SBA’s creditworthiness requirements, look into business loans for bad credit as an alternative.
And if none of the above disqualifications apply to you, then you’re in a great position to proceed with your SBA loan application!
Ready to Apply for an SBA Loan?
If you’re ready to move forward, take advantage of our SBA loan resources to get prepared:
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SBA Loan Requirements
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SBA Loan Rates
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SBA Loan Calculator
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Best SBA Lenders
By understanding these eligibility requirements and preparing your business accordingly, you’ll be well on your way to securing the SBA loan that will help you grow your business.
