June 10, 2025

Starting June 1, 2025, the U.S. Small Business Administration (SBA) implemented sweeping changes to its lending standards with the release of SOP 50 10 8. These revisions mark a return to more conservative underwriting practices, significantly impacting how businesses—especially startups and those seeking acquisition financing—access SBA-backed loans. Here’s what commercial borrowers, franchisees, and business buyers should understand about the new landscape.

Key Changes in SBA Lending

  • Stricter Equity Injection Requirements
    • For both startups and business acquisitions, borrowers must now contribute a minimum 10% equity injection based on total project costs.
    • Seller promissory notes can still be used, but only if they are on “full standby” (no principal or interest payments) for the entire loan term (typically 10 years), and they cannot make up more than 50% of the required equity injection. This makes seller financing much less flexible and practical for many deals[1][2][3].
  • Tightened Ownership and Citizenship Rules
    • Only businesses 100% owned by U.S. citizens, nationals, or unconditional lawful permanent residents are eligible for SBA loans.
    • Lenders must now certify that no direct or indirect owner is an ineligible person, including foreign nationals, refugees, and undocumented aliens. This is a notable shift from the previous 51% ownership threshold[4][3][5].
  • Reduced Loan Thresholds and Higher Credit Requirements
    • The maximum amount for a 7(a) “small loan” has been reduced from $500,000 to $350,000.
    • The minimum SBSS (Small Business Scoring Service) score for these loans has increased from 155 to 165. Loans below this threshold must be processed as standard 7(a) loans, which come with stricter underwriting and documentation requirements[4][3][5].
  • Enhanced Documentation and Verification
    • Lenders must verify and compare tax transcripts to borrower-provided tax returns for 7(a) small loans.
    • The SBA has reinstated requirements for hazard and life insurance, as well as tax transcript verification, signaling a return to more rigorous documentation standards[1][3][6].

Franchise Lending and Affiliation Rules

  • Reintroduction of the SBA Franchise Directory
    • The SBA Franchise Directory is back, streamlining approvals for franchised businesses listed on the directory.
    • Lenders must now verify that franchised borrowers are listed in the directory, simplifying affiliation reviews and reducing processing time for eligible franchises[1][7].
    • The SBA now prohibits transactions where a franchisor or management company exercises complete operational control, reinforcing the requirement for independent business operation[1][7].

What These Changes Mean for Commercial Borrowers

The new SOP reflects the SBA’s intent to strengthen risk management and ensure borrowers have a substantial financial stake in their ventures. While these changes promote financial discipline, they also introduce new barriers for startups, younger companies, and businesses with limited access to capital. Buyers and business owners should expect:

  • Higher upfront cash requirements due to stricter equity injection rules.
  • More rigorous underwriting and documentation for all loan applicants.
  • Limited flexibility in deal structures, especially for acquisitions relying on seller financing.
  • Expanded eligibility verification, including a six-month lookback period for ownership by ineligible persons[1][3][7].

Preparing for the New SBA Landscape

As the SBA tightens its standards, borrowers are encouraged to:

  • Review personal and business finances to ensure they can meet the new equity and credit requirements.
  • Consult with financial advisors and SBA lending experts to navigate the updated application process and explore alternative funding sources if needed.
  • Prepare detailed documentation for all income, assets, and ownership structures to streamline the underwriting process.

The June 2025 SOP changes represent a significant shift in SBA lending. By understanding these updates and planning accordingly, commercial borrowers can position themselves for success in the new environment[1][3][6].

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  1. https://www.whitefordlaw.com/news-events/client-alert-sba-issues-sop-50-10-8-key-changes-impacting-sba-7a-lending     
  2. https://getscalefunding.com/scale-funding-insights/sba-loan-rules-are-changing-what-you-need-to-know/
  3. https://www.withkumo.com/blog/top-things-to-know-about-the-june-1-2025-us-small-business-administration-sba-significant-changes-standard-operating-procedure-sop-50-10-8     
  4. https://www.bylinebank.com/insights/key-updates-in-the-sbas-revised-standard-operating-procedures/ 
  5. https://www.nerdwallet.com/article/small-business/sba-loan-changes-harder-to-get 
  6. https://www.grasshopper.bank/new-sba-sop-what-you-need-to-know-about-50-10-8/ 
  7. https://www.taftlaw.com/news-events/law-bulletins/sba-franchise-directory-reintroduced-effective-june-1-2025/  

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