What Small Business Owners Need to Know

Effective June 1st, 2025, the Small Business Administration (SBA) implemented significant changes to its rules for new loan requests with the issuance of the Standard Operating Procedure (SOP) 50 10 8. These updates impact various aspects of SBA lending, including eligibility criteria, loan amounts, documentation requirements, and more.

As your trusted banking partner, Byline is committed to helping prospective borrowers navigate these changes seamlessly. Our team is here to provide expert guidance and support, ensuring businesses can continue to access the financing needed to grow and succeed.

Byline’s Summary of Key Changes for New Loan Requests

1. Eligibility Certification:

Every owner (including minority owners) must be a U.S. citizen or Lawful Permanent Residents (green card holders). SBA lenders must certify that no direct or indirect owner is an ineligible person, including foreign nationals, refugees, and undocumented aliens. Only U.S. citizens, nationals, naturalized citizens, and lawful permanent residents qualify for SBA financing.

2. 7(a) “Small Loan” Program

• • Maximum loan amount: The maximum 7(a) Small Loan amount has been reduced from $500,000 to $350,000.
  • SBSS Score: The minimum acceptable SBSS score has been raised from 155 to 165. Loans with scores below 165 must be processed as standard 7(a) loans.
  • Tax transcript verification: For 7(a) Small Loans, lenders must verify and compare tax transcripts to borrower-provided tax returns.

3. SBA Franchise Directory:

• • The SBA Franchise Directory is reinstated, requiring franchisors and distributors to sign a certification by July 31st, 2025, to be included. Any franchisor or distributor who has not signed a new certification will be removed from the Directory.
  • SBA lenders can only lend to approved franchisors or distributors that are in the Directory and have completed the appropriate paperwork.

4. Startup Down Payment Requirement:

The required minimum equity down payment for starting a new business is back to 10%, previously 0%.

5. Ineligible Business Models:

Shopping centers, shared office suites, salon suites, ghost kitchens, and similar models are ineligible unless specific conditions are met, such as revenue must be earned through membership dues, customers must not have assigned spaces, and the business must be responsible for necessary equipment.

6. Eligibility for Individuals on Parole or Probation:

Businesses owned by individuals on parole or probation may be eligible with additional requirements, such as a plan for continued operations in case of reincarceration and consideration of additional guarantors.

7. Verification Requirements:

Date of birth for 100% of individual ownership and date of formation for all entities are required for SBA authorization through the E-Tran system.

8. Landlord Reimbursements:

• • If loan proceeds finance improvements on leased space and the landlord reimburses the borrower, the reimbursement must be used to pay down the loan or documented for other uses.

9. Partial Business Acquisitions:

Alternative forms of third-party verification, such as CPA-prepared financial statements or sales tax records, can be used for partial business acquisitions instead of tax returns.

10. Merchant Cash Advances:

Merchant cash advances and factoring agreements are no longer eligible for refinancing into SBA loans. Merchant cash advances are based on future credit or debit card sales.

11. Co-Borrower and Multi-Step Ownership Requirements:

• • For partial changes of ownership, both the operating company and acquiring persons must be co-borrowers.
  • Sellers retaining less than 20% ownership must personally guaranty the loan amount for two years.
  • Any existing owner in a partial change of ownership who is acquiring or gaining any direct and/or indirect ownership interest in the Operating Company must be Co-borrowers on the new loan, regardless of the percentage of ownership being gained.
  • For any new owners, the percentage of ownership for guarantying the loan will be based on the post-sale percentage of ownership of the business.
  • Multi-step partial changes of ownership are no longer eligible. Partial business acquisitions must be done as stock purchases to ensure continuity of ownership and obligations.

12. Equity Injection for Ownership Changes:

A 10% equity injection is required for complete changes of ownership.

Seller notes are allowed as part of the equity injection if:

• • • They make up no more than 50% of the required equity or 5% of the project cost.
    • They are on full standby for the life of the SBA loan

13. Sources of Equity:

Acceptable sources of equity have been further defined and include standby agreements (if the debt is on standby for the life of the SBA loan), non-borrowed cash, personal loan (not paid back by business cash flow), grants (with no repayment or claw-back provisions), assets, and prepaid expenses.

14. Life Insurance Requirement:

Life insurance is required for SBA 7A loans above $350,000 to single-owner businesses if the loan is not fully secured by hard collateral. The insurance should cover the collateral shortfall of the loan.

15. Working Capital Justification:

When 50% or more of the loan proceeds are used for working capital, lenders must explain why this level is necessary and appropriate in the credit memorandum.

16. Delegated Authority:

SBA lenders with delegated authority must approve loans using their authority, with exceptions for refinancing same institution debt and 7(a) International Trade Loans where the SBA is not in a first lien position.

Byline Bank is dedicated to helping you understand and adapt to these changes. As a top national SBA lender with designated Preferred Lending Program (PLP) status, our experienced team is here to help. We offer personalized strategic guidance to ensure your financing needs are met. Feel free to reach out to our SBA team for more information and support. Contact an SBA Expert.

This article provides Byline’s summary of the SBA SOP 50 10 8 based on available information. Requirements may vary based on specific circumstances and further SBA guidance. Reference the official SBA website for the SBA SOP 50 10 8 source document for more information or contact Byline Bank for information specific to your situation.