Changes to Small Business Administration (SBA) Business Loan Program Policies in Early 2025 — IN12549

Summary

This is a Congressional Research Service Insight, IN12549, dated April 28, 2025, by Anthony A. Cilluffo, on changes to SBA 7(a) and 504 loan program policies in the new standard operating procedures, SOP 50 10 8, effective June 1, 2025. It states that SBA loans will be restricted to small businesses with 100% of direct and indirect owners, loan guarantors and key employees who are U.S. citizens, U.S. nationals or lawful permanent residents, replacing the previous 51% policy. It describes a reinstated limited personal resources test, a collateral threshold of $50,000 (down from $500,000), a 10% equity injection for start-ups and changes of ownership, and a minimum business credit score rising from 155 to 165. It says the SBA franchise directory is reinstated, with a master certification process effective August 1, 2025.

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                                                                                              INSIGHTi



Changes to Small Business Administration
(SBA) Business Loan Program Policies in Early
2025

April 28, 2025
On April 22, 2025, the Small Business Administration (SBA) announced changes to policies and
procedures for its two largest small business loan programs, the 7(a) and 504 loan guarantee programs.
The SBA released a new version of the loan origination standard operating procedures for those programs
(SOP 50 10 8). The new SOP changes loan eligibility criteria, underwriting standards, and procedures,
and becomes effective on June 1, 2025. This Insight reviews those changes, which generally limit
eligibility in certain cases, tighten underwriting standards, and put more responsibility on participating
lenders.


Loan Eligibility
The new SOP implements previously announced loan eligibility changes related to citizenship and
immigration status (SOP pp. 27-31). SBA loans will be restricted to small businesses with 100% of direct
and indirect owners, loan guarantors, and key employees (such as top-level managers) who are U.S.
citizens, U.S. nationals, or lawful permanent residents (LPRs). None of these individuals may be an
ineligible person: a foreign national, refugee, asylee, conditional LPR, visa holder (such as a work or
student visa), Deferred Action for Childhood Arrival (DACA) participant, or an undocumented
immigrant. Lenders must verify the documents and status of LPRs with immigration officials. Given a
new six-month lookback requirement, no ineligible person may have been an owner or key employee six
months prior to the loan application unless that person has permanently severed ties with the business.
Additionally, while most ineligible persons may be regular (not key) employees of the business, a
business that receives an SBA loan may not employ undocumented immigrants. This is a change from the
previous long-standing policy in the programs, which allowed assistance to any business 51% or more
owned by U.S. citizens, U.S. nationals, and LPRs.
The new SOP also tightens the “no credit elsewhere” requirement (pp. 38-39). By statute, the 7(a)
program may not provide assistance “if the applicant can obtain credit elsewhere” (15 U.S.C.
§636(a)(1)(A)(i)). Under previous procedures, lenders did not consider the personal resources of the

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owners (a formal personal resources test was eliminated in 2015). The new SOP reinstates a limited
personal resources test—lenders must check if any owner has liquid resources to substitute for the loan,
after providing allowances for savings for retirement, college, and future medical needs. Additionally,
lender credit memoranda must now discuss “specific reasons” that no credit is available elsewhere,
including “supporting documentation.” Previously, the SBA encouraged lenders to select one or more
designated reasons for why credit was not available elsewhere.
Other new loan eligibility modifications in the SOP include requiring lenders (instead of the SBA) to
verify applicant eligibility (p. 13); reinstating pre-2023 guidance that removes eligibility for businesses
with operations related to marijuana, hemp, and cannabidiol (CBD; pp. 21-22); removing the SBA’s
ability to waive ineligibility of individuals with losses on or who are delinquent on federal debt (pp. 24-
26); and requiring lenders to verify that loans to certain unique business structures—for example,
employee stock ownership plans (ESOPs), cooperatives, and rollovers as business start-ups (ROBS)—are
compliant with all relevant regulations issued by other federal agencies (pp. 45-48).


Underwriting Standards
The SBA described the underwriting changes in the SOP as “restoring 7(a) underwriting criteria” to their
pre-2023 level and “eliminating the ‘do what you do’ philosophy.” (In this context, underwriting occurs
when a lender evaluates a loan application and offers terms commensurate with the borrower’s level of
creditworthiness.) The new SOP will require collateral for almost all loans—the threshold for requiring
collateral will be $50,000 (p. 171; down from $500,000). Borrowers will also be required to contribute an
equity injection of 10% of project costs for start-up businesses and changes of ownership (p. 131;
restoring pre-2023 requirements).
The threshold for 7(a) small loans will be lowered to $350,000 (p. 147; from $500,000). The minimum
business credit score will rise from 155 to 165 (p. 166). Applications for small loans from borrowers who
meet credit score criteria are eligible for expedited processing—lowering the dollar threshold and raising
the minimum credit score will require more loans to undergo full underwriting.
The new SOP will also increase hazard and flood insurance requirements (pp. 92-95) and require life
insurance on principals for businesses dependent on the principal’s active participation (such as a sole
proprietorship business; pp. 95-96).

Program Procedures
The new SOP will require lenders with delegated processing authority to use it for all loans with limited
exceptions (pp. 141-142). Delegated processing authority allows lenders to approve loans on the SBA’s
behalf with limited oversight. Before the change, lenders with delegated processing authority might use
nondelegated processing in unusual situations so that the SBA would be on the record as agreeing with
the credit decision. The SBA explained that this change is intended to reduce the workload at the SBA
office processing loan applications and to allow that office to focus on less-experienced lenders (lender
webinar 30:26-36:53).
The new SOP reinstates the SBA franchise directory (p. 16). The franchise directory is a resource for
lenders to know which business models are preapproved by the SBA. If a brand is not listed in the
franchise directory, the brand is either ineligible or the lender must perform a detailed review of franchise,
license, and management agreements to determine if the applicant is eligible. Under the new SOP,
franchisors and distributors need to sign one master certification with the SBA; the master certification
replaces the need for every loan applicant for that brand to include an SBA franchise addendum with the
loan application. This new process becomes effective on August 1, 2025.
Congressional Research Service                                                                                        3




The new SOP will also make other procedural changes. Lenders will need to verify financial information
(usually through IRS tax transcripts) for all loans (pp. 90-92). Loan applicants must provide information
on at least 81% of direct and indirect ownership of the business (p. 30; the SBA encourages lenders to
enter 100% of ownership, lender webinar 21:30), including the date of birth for all listed owners.
Additionally, the SBA will prioritize processing applications from veteran-owned businesses, and
encourages lenders “to give special consideration to veterans during application processing” (p. 109).


Author Information

Anthony A. Cilluffo
Analyst in Public Finance




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