Business loan declined? Common reasons in Australia and what to do next

If your business loan is declined, first ask the lender why, then check the three records lenders rely on: your ATO account (lodgements and tax debt), the credit files of the business and of each director or guarantor, and your bank statement conduct. Most declines come down to one of a short list of reasons: an unmanaged tax debt, insufficient cash flow cover, too little security, too short a trading history, adverse credit history, or an industry the lender avoids. Fix what you can before applying again, and avoid a run of rapid applications to other lenders, which can itself count against you.

This guide is part of business loan mistakes to avoid.

The most common reasons, and what fixes them

Reason	How you can tell	What helps
ATO debt not on a payment plan	ATO account shows overdue balance	Lodge outstanding returns, set up a payment plan, keep to it
Overdue lodgements	BAS or income tax not lodged	Lodge, even if you cannot pay yet
Cash flow does not cover repayments	Lender's DSCR test failed	Smaller amount, longer term, consolidate other debts; see borrowing capacity
Not enough security	Loan exceeds the lender's LVR	Add security, contribute more cash, or choose an asset-secured product
Short trading history	Under the lender's minimum	Asset finance, property-secured lending, wait; see start-up options
Adverse credit history	Defaults, judgments or many enquiries on a credit file	Correct errors, settle defaults, allow time
Bank statement conduct	Dishonours, overdrawn balances, gambling, mixed personal spending	Several clean months before reapplying
Industry appetite	Lender states it does not lend to your sector	Lenders specialising in your industry
Incomplete application	Missing documents	Use the application checklist

Step 1: ask for the reason

Lenders do not always give a detailed reason, but many will tell you which area of the assessment was the problem. Banks that subscribe to the Banking Code of Practice have made commitments about how they communicate lending decisions to small business customers. Ask, in writing if necessary:

Was it cash flow, security, credit history, tax position, industry or documents?
Would a smaller amount, a longer term or more security change the decision?
How long should we wait before reapplying?

Step 2: check your ATO position

Download your integrated client account from Online services for business or ask your tax agent. If there is a debt:

Ask the ATO for a payment plan. Lenders often accept a tax debt that is on a plan being kept to.
Note that the ATO can disclose certain business tax debts to credit reporting bureaus, broadly where a business with an ABN has at least $100,000 of tax debt overdue by more than 90 days and is not engaging with the ATO (for example through a payment plan it is keeping to). Check the ATO's current criteria; engaging early helps avoid it.
The general interest charge the ATO applies to overdue tax is no longer tax deductible when it is incurred on or after 1 July 2025, which makes an unpaid tax debt more expensive than it used to be. Factor that in when comparing the cost of a tax debt with the cost of a loan.

Directors should also check for director penalty notices, which can make them personally liable for certain unpaid company tax amounts.

Step 3: check credit files

Personal credit files. Each director or guarantor can get their credit report free from each of Australia's main consumer credit reporting bodies (Equifax and Experian; Experian acquired illion in 2024), with the right to a free report at least every three months. Check for:

defaults or court judgments you did not know about;
enquiries you did not authorise;
errors in personal details.

You can ask the credit reporting body or the credit provider to correct errors. Complaints about uncorrected errors can go to AFCA or the Office of the Australian Information Commissioner.

Business credit files. Commercial credit reporting bodies hold files on businesses, including commercial credit enquiries, defaults, court actions and, where reported, ATO debts. These reports are usually paid, but checking one before a major application can explain a decline.

Step 4: do the lender's maths yourself

Recalculate your debt service cover with your current figures. If you are short, the options are:

reduce the amount (bring in more of your own cash);
extend the term, if the purpose suits;
refinance existing high-cost debts first to free up capacity (see the refinancing example);
improve earnings for a few more months and apply with updated figures.

Step 5: choose the next lender carefully

Each formal application can leave an enquiry on credit files. Rather than applying to many lenders at once:

ask a broker or lender for a preliminary assessment before a formal application;
target lenders that specialise in your industry or situation;
consider a different product (equipment finance, invoice finance) that fits your security and cash flow.

Be cautious about lenders that approve anyone quickly at very high cost. A decline is information; a high-cost loan approved despite it can make things worse. Compare any offer using the factor rate guide if needed.

Worked example: turning a decline into an approval

A retail business applied for $120,000 and was declined. The lender said cash flow and tax were the issues. The owner found:

an ATO debt of $28,000 not on a plan;
three short-term loans with combined repayments of $4,100 a month;
EBITDA of $150,000.

Existing repayments: $4,100 × 12 = $49,200 a year. The proposed new loan added about $30,000 a year. Total: about $79,200. DSCR: $150,000 ÷ $79,200 = 1.89 on paper, but the lender also counted a notional repayment on the ATO debt and treated the short-term loans as a risk signal.

The plan: set up an ATO payment plan; refinance the three short-term loans into the new facility, so the new loan became $120,000 + $60,000 of payout = $180,000 over five years, about $3,780 a month at 9.5%, or $45,400 a year, replacing $49,200 of old repayments plus the $30,000 originally planned. Debt service cover rose to about 3.3 ($150,000 ÷ $45,400) before allowing for the ATO plan. Three months later, with the ATO plan in place and a cleaner application, the business was approved.

If a decline followed a request for a guarantee from a family member, read personal guarantees before trying again, and if an old registration showed up on a lender's search, see clearing PPSR registrations.

Frequently asked questions

Does a declined application go on my credit file?

The enquiry is recorded; the decision itself generally is not. Many enquiries in a short time can concern lenders.

How long should I wait before reapplying?

Long enough to fix the reason. For a tax issue, that may be a few months of keeping to a payment plan; for credit file issues, it can be longer.

Can I complain about a decline?

Lenders are entitled to decline, but if you think the process was unfair or wrong information was used, you can complain to the lender and then AFCA. See complaints and official sources.

Is a broker more likely to get me approved?

A broker who knows lender policies can match you to a lender whose criteria you meet, which can avoid unnecessary applications.

Sources

ATO — payment plans, tax debt disclosure and general interest charge
Office of the Australian Information Commissioner — credit reporting rights and corrections
ASIC Moneysmart — getting your free credit report
Australian Financial Complaints Authority — complaints about credit reporting and lenders
business.gov.au — finance and debt help for business