New changes to SBA loans and programs for small businesses: What you need to know

The U.S. Small Business Administration (SBA) has recently made significant changes to their small business loan programs to help level the playing field and boost access to credit for smaller businesses. Read below for more information about those changes and what you can expect.

Changes to SBA’s signature 7(a) and 504 Loan Programs

Small business owners will have more access to funding through the SBA now that the agency is broadening their network of lenders and streamlining lender procedures. To do so, the SBA has developed three Standard Operating Procedures that took effect on August 1.

Among the most notable changes are:

• Streamlined loan processing times for those seeking SBA-backed products.
• Background and fraud checks once performed by lenders will now be conducted by the SBA.
• Collateral is no longer required for loans of $50,000 or less, but personal guarantees are still in place.
• The SBA will now provide small-business FICO scores on all 7(a) loans under $500,000, except for a few specific loans. Before, the lender had to provide those scores.
• Simplified underwriting for loans of $500,000 or less, raised from the previous $350,000.
• Lenders are now allowed to charge up to $2,500 in origination fees. Before, lenders could not charge origination fees.
• An earlier change also allows business owners with SBA loans to sell a portion of their business, which can be a great way for an aspiring entrepreneur to dip their toes into business ownership and learn alongside experienced entrepreneurs. 

Access the Standard Operating Procedures (SOP) below.

Lender and Development Company Loan Programs

SOP 50 10 contains SBA’s policies and procedures governing the 7(a) and 504 loan programs.

Lender participation requirements

SOP 50 56 1 defines criteria for becoming an SBA Lender; types of delegated authority; a brief overview of how SBA conducts oversight of SBA Lenders; processes for loan reporting, Secondary Market transactions, loan transfers, and securitization.

7(a) Loan Servicing and Liquidation

SOP 5A will begin accepting the Universal Purchase Package (UPP), which will streamline the process for lenders to request the SBA to honor loan guaranties, and SBA will introduce new features in E-TRAN, SBA’s online platform used by lenders to upload loan applications.

You can review a full list of changes here.

Changes to the SBA’s Disaster Lending Program

With increasing natural disasters occurring across the nation, small businesses are bearing the brunt of climate change and losing their homes and businesses. Read below to find out how business owners affected by events such as earthquakes, floods, fires, hurricanes and tornadoes will benefit from changes to the disaster loan programs.

Among the most notable changes are:

• Loan limits to cover the cost of lost personal property, including clothing, furniture, appliances, automobiles, and more for home disaster loans will also increase from $40,000 to $100,000. This applies to individuals impacted by natural disasters, including small business owners.
• To help disaster survivors rebuild and recover, the SBA is now providing an initial payment deferral period. This will extend the first payment from five to twelve months for all disaster loans.
• In addition to the initial deferment period on initial payment, all disaster loans will waive interest accrual for the first twelve months of the initial disbursement. 
• The SBA will also clarify collateral requirements for disaster loans to better determine which loans will have blanket liens on commercial assets.
• Homeowners, not just business owners, will see an increase in loan limits to cover costs of home repairs or replacements, contractor malfeasance, refinancing, and mitigation for primary residences, from $200,000 to $500,000.
• For disaster loan reconsideration or appeal requests, the SBA will no longer request financial statements, as each loan applicant already provides such financial statements at the time of loan application.
• The SBA will now expand eligibility of disaster loans to consumer or marketing cooperatives, which aligns disaster lending with SBA’s 7(a) and 504 business loan programs and allows these cooperatives to apply for the Economic Injury Disaster Loan (EIDL) and Military Reservist Economic Injury Disaster Loan (MREIDL) programs.

You can review a full list of changes here.

Changes to SBA’s 8(a) Eligibility Requirement

As a result of the COVID-19 pandemic, the SBA had set in place a Bona Fide Place of Business (BFPOB) Requirement Moratorium on the 8(a) Business Development Program in 2021. This meant that participants in the 8(a) Business Development Program could forgo the requirement of having an established physical presence in a particular location to be awarded any construction contract. Now, the SBA is extending that moratorium until September 30, 2024 to allow small and disadvantaged businesses to continue to start, operate and grow their businesses. 

To learn more about the announcement, click here.