On June 1, the Small Business Administration (SBA) enacted a new version of its Standard Operating Procedures, SOP 50 10 8, which governs eligibility, underwriting, and use of proceeds for SBA-backed loans, including 7(a) and 504 programs.
These revisions affect both business buyers and owners seeking capital and represent one of the most comprehensive policy updates in years.
Below is a summary of the most significant updates.
Key Notices
- SBA Guarantee Fees are now charged on all loans, regardless of size. This includes those under $1 million.
- To qualify, a business must be 100% owned by U.S. Citizens or Legal Permanent Residents. No other ownership structures are eligible.
Core Loan Requirements
- 7(a) loans over $350,000 are now considered Standard Loans and must meet full documentation standards.
- Businesses must be based and primarily operating within the U.S.
- The Alternative Size Standard thresholds have increased:
- Tangible net worth limit: $20 million
- Average net income (2 years): $6.5 million
- Any ineligible activity disqualifies the entire business.
- Applicants with defaults on federal loans (PPP, EIDL, student loans, etc.) are not eligible.
- The SBA’s Franchise Directory is reinstated—only listed franchises are eligible.
- Lenders must certify that credit is not available elsewhere for the applicant.
Use of Loan Proceeds
- SBA loans may not be used to purchase excess land not intended for immediate use.
- Leasehold improvements of $500,000 or more (or 30%+ of proceeds/collateral) require lease terms that match or exceed the loan term.
- If the landlord reimburses the borrower, that reimbursement must reduce the loan balance or be treated as working capital (if properly documented).
Insurance and Environmental Requirements
- Hazard insurance is required on all pledged collateral.
- Flood insurance is mandatory for any collateral located in a special flood hazard area.
- Life insurance is required for under-collateralized loans where the business depends on a single owner.
- Environmental due diligence is required for all commercial real estate used as collateral.
- Child-occupied facilities must undergo lead testing and water sampling if built before 1978.
Refinancing and Ownership Changes
- Merchant cash advances and factoring agreements are not eligible for refinancing.
- Full business acquisitions must include a 10% equity injection. Half may come from a seller note in full standby for the life of the loan.
- Partial buyouts require co-borrower participation from all parties gaining interest.
- Sellers remaining as minority owners post-transaction may need to provide a limited-duration guaranty.
Credit and Collateral
- Loans based on projections must show 1.15x debt service coverage within 2 years.
- Startups (under one year in business) must provide 10% equity.
- If there is a collateral shortfall, lenders must use available equity in real estate held by any 20%+ owner.
- Real estate held jointly with a spouse and minor children is considered in full. In Florida, this includes homestead property, so legal counsel may be advised before pledging residential assets.
Final Certifications Before Disbursement
Borrowers must certify:
- No recent adverse financial changes
- Tax and legal compliance
- No illegal employees
- No delinquent child support
- Compliance with environmental laws
- No major asset transfers or ownership changes without lender approval
Takeaway
SOP 50 10 8 introduces stricter requirements around ownership, eligibility, collateral, and documentation for SBA-backed loans. If you're planning to buy or sell a business, it’s more important than ever to work with experienced professionals who understand how these changes affect deal structure and financing. At Green & Co. Business Brokers, we understand how these SBA changes affect business transactions and can help you navigate them with clarity.
For more details, download the full document here:
SOP 50 10 8: Technical Updates Effective June 1, 2025 (PDF)