New SOP = New Playbook. Here’s what business owners and their advisors need to know:
Starting June 1, 2025, the Small Business Administration (SBA) is rolling out significant updates to its 7(a) loan program. The changes, detailed in SOP 50 10 8, will include stricter underwriting standards, adjustments to eligibility requirements, loan size limits, and lending procedures. These updates aim to tighten lending criteria in response to concerns over rising defaults and lenient underwriting practices.
Ownership Rules Changes
100% of business ownership must be US Citizens, US Nationals, and/or Permanent Residents (Green Card Holders) only. 2-year conditional Green Cards are ineligible. This applies to all individual owners of all entities in a project. The only exception is joint ownership of secondary collateral. I.e., spousal ownership in a house where the spouse would be considered ineligible.
- Franchise Directory is BACK
- To qualify, new franchises must be SBA-approved. Franchisors can be added to the list through a process.
- No Multi-Step Ownership Transfers
- All ownership transfers must be completed in one step. Seller equity rollover is no longer allowed.
- Seller Notes as Equity Injection
- A seller’s note can make up a maximum of 50% of the required equity injection. Seller notes for equity must be on full standby for the life of the SBA loan. No payment allowed.
- Seller Guarantees Required – Partial Ownership Change
- Sellers must personally guarantee loans for 2 years in partial ownership changes, even when their remaining ownership is under 20%. Partial changes of ownership can only be done as stock purchases.
- No More MCA or Factoring Refinance
- Merchant Cash Advances and factoring are no longer eligible for SBA refinance.
- Small Loan Limit Reduced
- Dropped from $500K to $350K.
- SBSS Score Raised
- The minimum score is now 165 (up from 155).
- Working Capital Scrutinized
- You’ll need detailed justification if 50 %+ of the loan is working capital.
- 10% Equity Injection is Mandatory
- This applies to all startups and ownership changes. The seller’s note may contribute up to 50% of the required equity injection for ownership changes, but only if on full standby.
- Hazard Insurance Required Over $50K
- No insurance = no eligibility.
- Closing Certifications Now Mandatory
- Updated certifications are required at closing.
- No More Substitute Guarantors
- All SBA-required guarantors must sign – no workarounds.
In Conclusion
If you’re considering applying for an SBA 7(a) loan, it’s crucial to understand how these changes might impact your eligibility and borrowing options. Stay informed by reviewing the updated SOP 50 10 8 guidelines and consulting with a trusted lender to navigate the new requirements effectively. By preparing now, you can position your business to secure the financing it needs under the revised program.
