2025-07-22
How to Navigate Obtaining an SBA 7(a) Loan in a Changing Regulatory Landscape
By Malin Phelan
Introduction
The advent of a new administration means changing policies for each part of the government, and the Small Business Administration (SBA) is no exception. As an SBA Preferred Lender, Port 51 Lending aims to educate its borrowers on what these changes mean, and how to navigate the loan process seamlessly and efficiently.
The SBA’s new Standard Operating Procedure (SOP) 50 10 8, was initially published on April 22, 2025, with Technical Updates released on May 28, 2025. It officially went into effect on June 1, 2025. This new SOP indicates a return to pre-2023 policy for SBA loan underwriting criteria. In general, the rules governing eligibility for and processing of 7(a) loans have become more restrictive. The new SOP contains a number of changes that small business owners should be aware of when applying for a loan. This article details some of the high level changes to the SOP that the Business Development Officers at Port 51 can assist you with as you navigate the SBA 7(a) loan process.
Enhanced “No Credit Elsewhere” Requirement
Under SOP 50 10 8, the Applicant must be prepared to show that they cannot obtain some or all of the funds that they would receive from the SBA loan on reasonable terms from other non-governmental sources. Such non-governmental sources include liquid assets that the owner possesses (with exceptions for funds intended for initiatives like college or retirement). SOP 50 10 8 has raised the burden of describing and providing documentation to satisfy this requirement. It is important that you preview this requirement early in the process of applying for an SBA 7(a) loan.
Return of Certain Collateral Requirements
The new SOP reinstates prior policy on the collateral that must be pledged to secure an SBA loan. The prior SOP required collateral only for loans of $500,000 and higher, but now mandates collateral for all loans over $50,000. Thus, essentially every loan will necessitate collateral, which may come from either business or personal assets. The SOP has strict rules regarding the pledge of collateral from both the business and its owners. Applicants for an SBA loan should understand these requirements in advance of initiating the process so there are no unpleasant surprises as to the pledge of certain assets such as a personal residence or investment real estate.
Changes in Ownership
The SOP contains new rules regarding partial changes of ownership that are particularly impactful in the current market for mergers and acquisitions of small businesses. In cases of partial ownership changes, sellers who retain less than 20% ownership in the business must guarantee the full amount of the SBA loan for at least two years. This differs from previous policy, which stated that if the seller retained less than 20% equity after sale, they would not be required to guarantee the loan. This rule does not require collateral to secure the two year guarantee. Importantly, the SBA’s policies with respect to guarantees applies to all remaining owners of the business, including selling owners that retain 20% or more ownership in the business, in which case said sellers must provide a guarantee of the SBA loan for the term thereof.
New Citizenship Rules
One sea change set forth in recent procedural notices and the new SOP relates to the citizenship status of business owners and how it impacts their eligibility to obtain an SBA loan. Previously, in order to qualify, 51% of the ownership of the company applicant had to be held by a U.S. citizen, U.S. National, or lawful permanent resident. Now, the recent procedural notice and revised SOP requires that 100% of the company’s direct and indirect owners are U.S. citizens or lawful permanent residents. Additionally, the business may not have any illegal aliens as employees. Lenders must document, and the Applicant must provide a certification for, their satisfaction of this requirement. Any business that does not abide by these requirements is not eligible for an SBA 7(a) (or 504) loan. Please note that businesses with direct or indirect ownership by those other than eligible persons may become eligible, but only if the ineligible owner(s) completely sever any relationship with the business.
Equity Injection
As was the case before, for start ups and transfers of ownership, the buyer must provide a 10% equity injection. However, the new SOP provides further limitations on the source of this injection, specifically including the terms of seller promissory notes.
For complete changes of ownership, the seller can take a seller note to finance up to 5% of the equity injection, but said debt must be on full standby for the term of the SBA loan. The buyer must also put 5% down. This differs from the prior SOP, where the seller could provide all 10% under more flexible standby terms.
Additionally, when an outside investor provides capital to a business with an obligation to repay that capital, it is considered debt and is not valid as a source of equity injection.
Small Loans & Credit Score Increases
The new SOP also brings changes to loan amounts. For the 7(a) small loan program, the maximum allowable amount has decreased from $500,000 to $350,000. Thus, standard 7(a) loans now range from $350,000 to $5 million (a maximum amount which has not changed).
Additionally, the FICO Small Business Scoring Service (SBSS) required for small loans under the Preferred Lender Program (PLP) has increased from 155 to 165. This is a credit score uniquely assigned to small businesses. The increase indicates higher standards for businesses looking to obtain loans under the expedited loan process.
Necessary Documents for Underwriting
Though many policies have become more rigid, some requirements for underwriting are more flexible. Lenders may now accept CPA-prepared statements, whereas before underwriting had to be based on tax returns. This change will expedite the loan application process in some instances.
How might these new rules affect small business owners?
These revised standards make the process of obtaining a 7(a) loan more stringent, but they are still well within reach. In summation, there is a push for more prudent underwriting standards. Businesses must have ample proof that they can succeed and are capable of repaying their loan according to the agreed-upon timeline.
How can Port 51 Lending assist you?
We are here to help. Our employees have wide-ranging experience in the field of 7(a) loans, and can give you extensive insights on the qualification process. We can help you navigate the changing regulatory landscape and determine if a 7(a) loan is the right decision for your small business. Reach out to Info@port51.com to inquire today.
About Port 51 Lending
Port 51 Lending, a non-bank SBA-licensed 7(a) SBLC and one of the five largest non-bank SBA Preferred Lenders, combines the expertise of a highly experienced group of lending professionals and an in-house legal team to deliver certainty in every transaction. Port 51 offers loan solutions that are tailored to meet the unique needs of each borrower and its common-sense approach to underwriting ensures a smooth process from start to finish. With a commitment to efficiency and transparency, Port 51 provides a seamless lending experience clients can count on.
About MassMutual (Massachusetts Mutual Life Insurance Company)
MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyowners. Founded in 1851, the company has been continually guided by one consistent purpose: we help people secure their future and protect the ones they love. With a focus on delivering long-term value, MassMutual offers a wide range of protection, accumulation, wealth management and retirement products and services. For more information, visit www.massmutual.com.
Media Contact
Port 51 Lending: Brittany Lyons, brittany.lyons@port51.com, (866) 446-6486 x577
MassMutual: Chelsea Haraty, chelseaharaty@massmutual.com, (413) 426-2008
Sources Used
- SAB Gov - Issuance of SOP 50 10 8 with Technical Updates
- NAGGL - New Technical Updates Version of SOP 50 10 8 Takes Effect June 1
- Whiteford Law - Client Alert: SBA Issues SOP 50 10 8: Key Changes Impacting SBA 7(a) Lending
- Startfield Smith - Best Practices: SBA Issues SOP 50 10 8
- Forbes - Trump’s Small Business Administration Is Making It Harder To Ditch The Corporate Grind
- Forbes - SBA Loan Limit May Double To $10 Million, But Not For Every Small Business
- Congress Gov - Changes to Small Business Administration (SBA) Business Loan Program Policies in Early 2025
