Update: SBA Issues SOP 50 10 8: Key Changes Impacting SBA 7(a) Lending

Attention SBA lenders and borrowers: The SBA has rolled out SOP 50 10 8, effective June 1, 2025, bringing major changes to SBA 7(a) and 504 loans. Here’s what you need to know:

• Stricter Loan Rules: A 10% minimum equity injection is now mandatory for business acquisitions, with stricter limits on seller financing.
• Loan Processing Changes: Loans of $350,000 or less require a minimum SBSS score of 165 for expedited processing. Larger loans face more detailed underwriting.
• Eligibility Updates: Borrowers must be U.S. citizens, lawful permanent residents, or qualified nationals, with stricter ownership and federal debt compliance rules.
• Franchise Directory Returns: Franchises must be listed in the SBA Franchise Directory by July 31, 2025, to qualify for SBA financing.

These updates aim to restore financial stability and improve loan quality. Borrowers and lenders must prepare for stricter documentation and compliance requirements to navigate this new framework.

Meet the NEW SBA 7(a) loan program (effective June 1, 2025)

Major Changes in SOP 50 10 8

The updated SOP 50 10 8 signals a shift back to more traditional lending practices, rolling back the pandemic-era flexibilities. These changes significantly affect how SBA 7(a) loans are underwritten, structured, and approved.

Return to Pre-2021 Underwriting Standards

SOP 50 10 8 reinstates the stricter underwriting standards that were in place before 2021. Loans exceeding $350,000 now require a thorough financial analysis, including complete financial records and more stringent credit evaluations. This is a clear departure from the relaxed standards introduced during the pandemic.

Under this updated guidance, lenders must provide detailed documentation demonstrating that borrowers are unable to secure financing from other sources. This requirement is enforced through the reinstated "credit elsewhere" test, which places additional responsibility on lenders to justify the need for SBA-backed financing.

New Loan Size Limits and Equity Injection Rules

The changes in underwriting standards also affect loan thresholds and equity requirements. The 7(a) Small Loan threshold has been lowered from $500,000 to $350,000. This means more loans will now undergo traditional underwriting instead of expedited processing.

For loans of $350,000 or less, borrowers must meet a minimum FICO Small Business Scoring Service (SBSS) score of 165 to qualify for expedited procedures. Loans below this threshold will need to be processed as Standard 7(a) or SBA Express loans, which involve more documentation and longer processing times.

Equity injection rules have also become stricter. Business acquisitions now require a minimum 10% equity injection from the buyer. Additionally, seller promissory notes can only cover up to 50% of this required equity injection and must remain on full standby for the entire loan term.

Updated Eligibility Guidelines

In addition to underwriting and loan structuring changes, SOP 50 10 8 introduces tighter eligibility criteria. These guidelines emphasize stricter ownership requirements. All owners must now be U.S. citizens, lawful permanent residents, or qualified U.S. nationals. This applies to both direct and indirect ownership structures.

Lenders are now required to input 100% of direct and indirect ownership details into E-Tran, the SBA's electronic loan processing system. This increased scrutiny means businesses with complex ownership structures or any foreign ownership may face disqualification from SBA financing.

Eligibility rules also address federal debt issues. Businesses with prior losses or delinquencies on federal debt are ineligible for SBA loans. However, businesses operating under an approved catch-up plan are not considered delinquent and may still qualify.

These citizenship and eligibility requirements align with SBA Policy Notice 5000-865754, which implements Executive Order 14159 regarding citizenship for 7(a) and 504 loans. These stricter guidelines are expected to reshape how business acquisition financing is structured, setting the stage for further adjustments in the next section.

How This Affects Business Acquisition Financing

The revised SOP 50 10 8 introduces significant shifts in how entrepreneurs and investors use SBA 7(a) loans for business acquisitions. These updates alter deal structuring, tighten requirements, and streamline certain processes.

Changes to Deal Structuring and Loan Terms

A key change is the SBA's requirement for a 10% minimum equity injection in ownership changes. Under the new rules, seller notes can only cover up to half of this equity injection and must remain on standby for the full 10-year loan term. For instance, in a $1 million acquisition, the buyer must contribute $100,000 in equity, with at least $50,000 coming from sources other than the seller. Buyers lacking sufficient personal funds will need to explore other equity sources to meet this threshold.

Additionally, mid-sized acquisitions exceeding $350,000 now require full financial documentation, pushing more transactions into traditional underwriting processes. As a result, loans above this amount will undergo thorough financial analysis and documentation, potentially increasing approval timelines for these deals.

The SBA has also reinstated annual service fees for all loan sizes. Starting March 27, 2025, a 0.55% annual service fee will apply to the guaranteed portion of the outstanding balance on 7(a) loans.

These changes set the stage for further updates, particularly in franchise and real estate lending.

SBA Franchise Directory Returns

In tandem with stricter financing terms, the SBA has brought back its Franchise Directory to simplify franchise acquisition processing. This updated directory introduces a two-tier system that directly impacts deal timing and feasibility. Franchises listed in the directory benefit from faster processing, while unlisted brands face significant hurdles.

Franchisors already listed in the directory as of May 2023 must complete the SBA Franchisor Certification by July 31, 2025, to remain eligible. Missing this deadline will result in removal from the directory, disqualifying franchisees from accessing SBA financing.

The directory creates clear guidelines:

• Listed brands: Lenders can proceed with both non-delegated and delegated processing.
• Unlisted brands: Non-delegated applications cannot be submitted to the SBA, and delegated lenders are prohibited from approving loans under their authority.

This process has notable implications for multi-brand operators. Applicants managing multiple franchise agreements must ensure all agreements meeting the Federal Trade Commission’s definition of a franchise are included in the directory for their applications to proceed.

Franchisors can begin submitting materials for directory inclusion starting June 1, 2025. The SBA will review compliance with the FTC franchise definition, assess eligibility, obtain certifications, and assign Franchise Identifier Codes to qualifying brands.

Construction Lending and Real Estate Rules

While the new SOP doesn’t drastically change construction lending rules, it does enforce stricter underwriting standards for acquisitions involving real estate improvements or expansions. For properties requiring renovations or build-outs, loans exceeding $350,000 will now face more in-depth financial scrutiny.

Equity calculations now cover all project costs. For acquisitions involving construction or renovation, the 10% equity requirement applies to the total project costs necessary to complete the ownership transfer, regardless of how those costs are funded.

These updates create a tougher landscape for leveraged acquisitions but aim to enhance loan quality and minimize taxpayer risk. Both buyers and lenders will need to adjust their approaches to successfully navigate these new requirements.

How to Work with SOP 50 10 8 Requirements

Navigating the revised SOP 50 10 8 guidelines can feel overwhelming, but a clear, organized approach can make all the difference for both borrowers and lenders. The updated rules demand more thorough documentation, stricter compliance checks, and enhanced due diligence. Here's how to tackle these requirements effectively.

Complete Due Diligence Steps

Borrowers need to provide additional records under the new guidelines. These include details like owners' birthdates, proof of U.S. citizenship or lawful permanent residency, and, where applicable, alien registration numbers. For real estate transactions, an environmental review must also be submitted, along with anticipated SBA guaranty fees.

Lenders, on the other hand, must ensure several critical steps are completed. These include:

• Recording owners' birthdates in the E-Tran system
• Verifying beneficial ownership (at least 81%)
• Confirming eligibility through USCIS
• Cross-checking tax returns with the IRS

Additionally, lenders need to assess borrowers' access to alternative credit sources and document why other financing options aren’t viable. Loan files must also include hazard insurance for collateral and signed certifications from key stakeholders. With such detailed requirements, integrating technology to streamline these processes is increasingly important.

Using Technology for Deal Sourcing

Technology plays a crucial role in simplifying the compliance process. Platforms like Kumo help streamline deal sourcing by consolidating business listings from various sources. With advanced filters and AI tools, buyers can identify acquisition opportunities that align with the updated SBA requirements, including the new equity thresholds.

Moreover, integrated systems that connect directly to SBA's E-Tran, Experian, and Thomson Reuters reduce the need for manual work. These tools speed up loan decisions while ensuring all compliance measures are met.

Working with Experienced SBA Lenders

While technology can streamline many tasks, experienced SBA lenders bring the expertise needed to navigate the complexities of the updated guidelines. These professionals help borrowers prepare the required documentation, structure deals to meet the 10% equity injection requirement, and accurately document prior financial investments. They also evaluate non-cash asset contributions under the revised rules.

Experienced lenders ensure credit memoranda reflect equity injections correctly, a critical factor as these changes take full effect on June 1, 2025. Their guidance can be the difference between a smooth process and a challenging one.

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Implementation Timeline and Future Changes

The rollout of SOP 50 10 8 follows a structured timeline, and staying informed about its implementation schedule is essential for ensuring compliance with the updated guidelines.

Effective Date and Transition Period

SOP 50 10 8 officially goes into effect on June 1, 2025, applying to all SBA loan applications submitted on or after this date. Any loan applications in progress that have not received an SBA number by June 1, 2025, must comply with the new requirements. This timeline also includes a key update just days before the official start.

On May 29, 2025, the SBA issued a Technical Updates (T/U) version of SOP 50 10 8, replacing the original version published on April 22, 2025. This updated version clarified several critical areas, including U.S. firm eligibility, ownership rules, lender responsibilities related to OFAC sanctions, CAIVRS checks, legal expenses, IRS verification alternatives, and requirements for partial ownership changes.

Preparing for Future Updates

As the new standards take effect, lenders need to stay prepared for additional adjustments. The SBA's approach indicates that minor revisions and technical corrections were expected before the June 1 deadline. Building flexibility into compliance systems is essential to adapt quickly to these regulatory updates.

For both borrowers and lenders, careful review of the updated requirements is vital. Consulting with experienced SBA lenders and legal professionals can help ensure compliance. Regular training sessions and updates to internal processes - such as franchise directory validation, citizenship verification, environmental report reviews, and revised underwriting practices for equity injections and SBSS score thresholds - can keep teams ready for any future changes.

Conclusion: Working with the Updated SOP 50 10 8

The updated SOP 50 10 8 brings tighter standards to SBA 7(a) lending, requiring both borrowers and lenders to adapt. Borrowers now face a minimum 10% equity injection requirement and must meet stricter documentation standards. For franchise acquisitions, inclusion in the SBA Franchise Directory is mandatory.

On the lender side, adjustments are equally critical. Lenders need to revisit their underwriting criteria and establish stronger compliance verification processes. Those with delegated authority must update their internal procedures and train staff to handle loans under the revised guidelines effectively.

These changes reflect the SBA's focus on maintaining consistent underwriting practices and ensuring responsible lending. Navigating this evolving regulatory environment may be challenging, but working with seasoned SBA professionals and consulting legal experts can help ensure compliance and smooth deal execution.

Success in this new framework will rely on careful preparation, detailed documentation, and forming strategic partnerships. While the standards are more rigorous, they aim to promote sustainable lending practices that support small business growth. Embracing these updates is key to maintaining a strong and reliable SBA 7(a) lending program.

FAQs

What does the 10% minimum equity injection requirement mean for SBA 7(a) business acquisitions under SOP 50 10 8?

Under the updated SOP 50 10 8, buyers using an SBA 7(a) loan to purchase a business must contribute at least 10% equity to the deal. This requirement ensures buyers have a financial stake in the business, promoting responsible lending practices and minimizing risk for all parties involved.

A seller note can be used to meet part of this equity injection, but there are strict conditions. The seller note must remain on full standby for the entire loan term and cannot account for more than 50% of the total equity injection. These rules add a layer of complexity to deal structuring, limiting the flexibility sellers have with financing options. Buyers should carefully plan for this requirement, as it will likely impact both negotiations and their overall approach to securing financing.

What is the impact of the reinstated 'credit elsewhere' test on SBA 7(a) loan eligibility?

The reinstated 'credit elsewhere' test means borrowers now need to show they can't get financing from traditional lenders before being eligible for an SBA 7(a) loan. This introduces more scrutiny, as lenders are required to carefully evaluate whether other credit options are truly unavailable.

For borrowers with limited credit history or fewer financial resources, this change could make accessing SBA 7(a) loans tougher. To boost your chances, make sure your financial records are thorough and clearly highlight why you need SBA-backed financing.

What do franchises need to do to be included in the SBA Franchise Directory before the July 31, 2025 deadline?

How to Get Listed in the SBA Franchise Directory by the July 31, 2025 Deadline

If your franchise wants to stay in the SBA Franchise Directory, there are a few key steps to take before the July 31, 2025, deadline:

• Submit All Required Documents: This includes your Franchise Disclosure Document (FDD), franchise agreement, and any other supporting paperwork the SBA requests.
• Certify Your Compliance: You’ll need to complete a certification proving your franchise meets the SBA’s eligibility standards.
• Stick to the Deadline: Make sure everything is submitted on time - no later than July 31, 2025.

Missing the deadline or failing to meet these requirements could mean your franchise gets removed from the directory. This would make your franchisees ineligible for SBA loans, cutting off a vital financing option. Start early to avoid any last-minute issues and keep SBA funding available for your franchisees.

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• SBA 7(a) Loan Basics for Business Buyers
• SBA Loan Terms: What Buyers Need to Know
• 7 SBA Loan Default Risks and How to Mitigate Them
• Top things to know about the June 1, 2025, the U.S. Small Business Administration (SBA) has implemented significant changes to its Standard Operating Procedure (SOP) 50 10 8, which governs the 7(a) and 504 loan programs