SBA Loan Requirements are Changing – Here’s What You Need to Know

Borrower-Friendly Updates Will Roll Out Over Coming Months

The U.S. Small Business Administration (SBA) is making changes to its loan programs and requirements. Effective as of August 1, 2023, the SBA’s new guidelines – via the latest Standard Operating Procedure (SOP 50 10 7) – are making things a little easier and more business-friendly for borrowers.

SBA loans, which can be up to $5 million and 75% guaranteed by the SBA, can be used to start, buy, sell, reposition, run, or expand a small business. They can also be used to acquire, remodel, or build commercial real estate. These loans aren’t restricted to rural communities like USDA loans – they can be used in urban, suburban, or rural settings across the country.

So, what are the main changes to know about so far for borrowers? There are two:

First, in a change of business ownership situation, the current owner no longer needs to sell 100% of their business for the request to be eligible for a SBA loan. Previously, the original owner could stay on as an unpaid short-term consultant or the like, but the full business stake had to be sold to the new owners/borrowers.

This opens up a whole new set of scenarios for owners who are thinking about selling their business. For example, an owner can now sell 70% of their business, retain the other 30%, and stay on as an employee (or CEO!). It’s a big deal for owners wanting to start a slow transition to retirement.

The other big change has to do with the loosening of restrictions on franchises. Historically, the SBA had kept a franchise registry and would only green-light loans to franchises on the list – but now that’s gone. This creates opportunities for more franchisors and franchisees to tap into SBA loans. And this means there’s now more responsibility on the lender and underwriter to complete thorough due diligence – for example, lenders will need to make sure the franchisor isn’t struggling and trying to offload franchises.

Another positive improvement for borrowers is a new application form that’s more user-friendly and easier to fill out, and other forms and processes are completely going away. The SBA is working to make the SBA loan programs accessible to more small business owners.

The long and the short of it is SBA loans are now more borrower-friendly! So, if you have any questions, don’t hesitate to contact us. Our team of experts has been trained on the new requirements by the National Association of Government Guaranteed Lenders (NAGGL).

We’ll also keep you posted on the continuing roll-out of SBA changes – we expect more updates over the coming months, so check back!