7 Key Changes Coming to Your SBA Loan Application

Everything small business owners and entrepreneurs need to know about the new SBA SOP changes.



The Small Business Administration (SBA) has changed the rules of the lending game.

New Standard Operating Procedures (SOP) were released that change the SBA 7(a) and 504 lending program criteria. These changes will make it easier for underserved communities, small business owners, and entrepreneurs get access to the funds they need to start and grow their business.


Here's everything you need to know about the new SBA SOP updates and how they affect your SBA loan application:


#1 - Rules around equity have changed.

An SBA loan equity injection is a down payment that certain applicants must provide in order to qualify for an SBA (7a) or SBA 504 loan. The rules that they changed regarding equity injections primarily affect startups, acquisitions, and employee stock ownership plans (ESOPs). 

For Startups: The SBA now has no equity requirement for startup businesses. Instead, equity injection requirements for each applicant will be determined by a bank's internal underwriting process and policies.

For Acquisitions: If buying a business results in a complete change of ownership, the SBA requires an equity injection of at least 10% of the total project costs. However, any seller debt on full standby can now be eligible as consideration for equity injection.

For Employee Stock Ownership Plans (ESOPs): Loans made for the purpose of purchasing a controlling interest in the employer's small business do not have a required equity injection and can be submitted by lenders with ESOP transaction authority.


#2 - Loans can now be used for partial changes of ownership.

Partial business acquisitions are now eligible through SBA loans.

In an effort to create more M&A opportunities and facilitate more mutually beneficial deal structures, the SBA now allows the selling owner to remain as an owner and involved in the day-to-day business.


#3 - The principle of control of one entity over another has been removed from the SBA's affiliation consideration.

By removing the principle that determines whether a business is considered "small", the SBA has simplified the way that lenders can determine affiliation. This simplification results in a removal of provisions on affiliation arising from management and control, franchise or license agreements, and identity of interest. 

Previously, lenders reviewed franchise and management agreements to make sure that the managing business/franchisor did not have too much control over a borrower. With the new changes, lenders will only be evaluating ownership percentage, with more than 50% generally being the threshold.


#4 - Personal resource test has been eliminated.

Before the new SBA loan program changes, all usable liquid assets of a commercial loan applicant were reviewed to show that the funds they requested were not already available from their personal resources. Now, SBA lenders are not required to evaluate applicants' personal liquidity during the review process.


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#5 - Lending criteria for loans under $500,000 has streamlined.

The SBA has relaxed the amount of due diligence and documentation lenders must use in determining creditworthiness for loans under $500,000. Lenders can now use any (or a combination) of the following when approving loans:

  • Credit score / history of the applicant, its associates, and any guarantors.
  • Earnings or cash flow of the applicant.
  • Any equity or collateral of the applicant.


#6 - Refinancing business debt is now simpler.

Rules regarding loans eligible for refinance have been streamlined, making it less difficult for a lender to refinance its own debt or the debt of another lender. 


#7 - Insurance requirements have changed.

Life insurance is no longer a requirement for 7(a) and 504 loans and hazard insurance is also no longer a requirement for loans under $500,000, with the exception of real estate collateral. The decision to use an insurance policy as collateral is up to the lenders / bank's internal policies.

"We look forward to the upcoming SBA SOP changes, as they will eliminate some of the roadblocks that have hindered SBA applications in the past. With the proposed changes in the SBA Loan Authorization process, specific SBA-related obstacles will likely be more easily overcome using appropriate and prudent commercial credit analysis processes and procedures that are already in place in commercial loan underwriting."

Don Kleinschmidt, Executive Vice President - Business Banking at Flagship Bank

Thanks to the new SBA loan program changes, achieving your ETA and small business dreams has become more attainable than ever. Whether you're looking to acquire, launching a start-up, or longing to grow, a commercial loan and reliable lender can assist. Contact one of our reliable lenders to find out your SBA financing options.

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