Navigating SBA Loan Changes Effective June 2025: Implications for Business Sales​

Effective June 1, 2025, the U.S. Small Business Administration (SBA) is implementing significant changes to its 7(a) and 504 loan programs under the new SOP 50 10 8 guidelines. These revisions aim to enhance the integrity of SBA lending practices and have substantial implications for business sales and acquisitions.​

Key Changes Impacting Business Sales

1. Reinstatement of Traditional Underwriting Standards

The SBA is eliminating the "Do What You Do" underwriting framework introduced in 2023, which allowed lenders to apply their own credit standards. This approach led to increased defaults and a $397 million deficit in the 7(a) loan program by FY2024. The new SOP reinstates stricter underwriting criteria, including:​

• Mandatory 10% cash injection for startup business loans.

• Increased minimum Small Business Scoring Service (SBSS) score from 155 to 165 for 7(a) small loans.

• Reinstated requirements for hazard insurance on loans over $50,000 and life insurance for certain borrowers.

• Mandatory tax transcript verification for all loans. 

2. Enhanced Citizenship and Ownership Requirements

Businesses must now be 100% owned by U.S. citizens, U.S. nationals, or lawful permanent residents to qualify for SBA-backed financing. Any ownership stake by individuals who do not meet these criteria renders the business ineligible for SBA loans. This change eliminates previous allowances for partial foreign ownership. ​

3. Equity Injection and Seller Financing Adjustments

The SBA now requires a minimum 10% equity injection for business acquisitions, with seller financing allowed to cover up to 50% of this requirement, provided it is on full standby for the life of the SBA loan. This emphasizes the importance of buyers having a solid financial foundation and ensures sellers remain invested in the long-term success of the business. 

4. Personal Guarantees for Sellers Retaining Ownership

Sellers who retain any ownership stake post-sale are now required to provide a full personal guarantee, regardless of the size of their stake. This ensures that sellers remain accountable and invested in the business's success after the transaction. ​

5. Structural Changes to Partial Buy-ins

Partial acquisitions involving rollover equity must now be structured as stock deals, as asset purchases are no longer eligible for SBA financing in these scenarios. Additionally, all new owners, regardless of their ownership percentage, must be listed as co-borrowers on the SBA loan. Sellers retaining less than 20% ownership must personally guarantee the full loan for at least two years. 

Implications for Buyers and Sellers

These changes aim to reinforce the integrity of SBA lending programs and ensure that SBA-backed loans are extended to eligible and qualified small businesses. However, they also introduce stricter eligibility criteria and increased documentation requirements, which could pose challenges for businesses with complex ownership structures or those previously relying on more flexible underwriting standards. ​

For buyers, the emphasis on a solid financial foundation and the requirement for personal guarantees may necessitate a reevaluation of financing strategies. Sellers may need to adjust expectations regarding deal structures and be prepared to provide personal guarantees if retaining any ownership stake.

Conclusion

The SBA's updated guidelines, effective June 1, 2025, represent a significant shift in the landscape of small business financing. Both buyers and sellers must familiarize themselves with these changes to navigate the business acquisition process effectively. Engaging with knowledgeable advisors and staying informed about SBA requirements will be crucial in ensuring successful transactions under the new regulations.

About Robbins Pellegrino: Robbins Pellegrino is a Florida-based business brokerage firm led by Chandler Robbins and Joe Pellegrino, Jr. that is committed to redefining industry standards. We focus on creating meaningful partnerships and ensuring successful business transitions for both buyers and sellers. For more information, visit us at www.robbinspellegrino.com or call (239) 360-6273