The SBA released SBA SOP update 50 10 8, effective June 1, 2025, which has significant changes to SBA lending requirements for all SBA lenders. The changes have wide-ranging ramifications, including changes in equity injection requirements, changes in ownership provisions, and loan guarantees. The March 7th, 2025, SBA policy update was regarding SBA Citizenship and LPR ownership requirements, plus new SBA loan guarantee fees. When considering SBA financing to buy or sell a business, it is important to work with a business broker with experience in SBA financing.
SBA SOP 50 10 8 June 1, 2025 Changes
SBA Buyer Financial Requirements
- 10% down payment required for acquisitions, startups, and ownership changes.
This in itself is not new, and the Seller is still permitted to make up the difference between the buyer down payment and the total 10% down payment, but what is new is that the Seller Note is now required to be on full standby (no payments) for 10 years (the full term of the SBA loan). Prior to this, the seller’s note only had to be on standby for 24 months. - Availability of Credit Elsewhere.
The credit elsewhere rule had been eliminated not long ago, and is now reinstated. The credit elsewhere rule essentially states that if the borrower can obtain commercial credit elsewhere, they are not eligible for an SBA loan. The thinking is “they don’t need one”. While this does not affect most buyers, it will affect high net worth individuals who could perhaps fund the acquisition with cash, stock, other investments, or commercial lending.
Change of Ownership Rules, Partial Changes in Ownership, and Seller Retained Equity
In transactions where the Seller retains equity, the Seller will be required to be an additional guarantor on the loan for 2 years. The prior rule was that if the Seller retained less than 20% equity, they were not required to guarantee the loan. The new rule applies to any equity the Seller retains, even 1%.
This will affect many construction transactions and other transactions with professional licensing. Under the old rule, the Buyer could operate under the Seller’s license for more than one year if the Seller had some equity in the business.
Under the new rule, the Buyer can operate the business under the Seller’s license for up to one year. If the Buyer needs to use the Seller as the licensee for more than 12 months, then the Seller must have some equity in the business, and to do so the SBA requires the Seller to have some equity. The Seller retaining some equity triggers the new rule where the seller will have to guarantee the loan for up to two years if the equity is less than 20%, and if the Seller’s equity is over 20%, then the Seller will be a full additional guarantor on the loan.
Buyer Insurance Requirement Reinstated
The insurance requirement has been reinstated; the previous rule change removed the insurance requirement and left it to the SBA lender’s discretion. Hazard insurance is required, and life insurance may be required.
Franchise Directory Reinstated
The SBA Franchise Directly had been discontinued in a recent rule change and is now reinstated. To be included in the SBA Franchise Directory, franchisors must have the required paperwork submitted by July 31st, 2025.
While this rule only affects franchisors concerning being listed in the directory, it will limit buyers using SBA financing for franchise acquisitions to franchises listed in the SBA directory.
New Buyer Citizenship and LPR Status Requirements for SBA Loans
On March 7th, 2025, the SBA issued SBA Policy Notice 5000-865754 to comply with Executive Order 14159 regarding citizenship requirements for obtaining 7(a) and 504 loans. The new SBA policy requires all owners and shareholders of a business applying for SBA financing to be U.S. citizens, U.S. nationals, or Legal Permanent Residents (LPRs), and prohibits any ownership, including minority ownership, by non-citizens, including Visa Holders.
Under the new requirements, SBA-backed financing is limited to businesses with 100% beneficial ownership by citizens of the U.S., U.S. Nationals, or Lawful Permanent Residents (LPRs). NO degree of beneficial ownership will be permitted for any individual not holding one of those three statuses.
New SBA Loan Guarantee Fees effective March 27th, 2025
Effective March 27th, 2025, the SBA announced new loan guarantee fees below, except for the Export Working Capital Program (EWCP) and SBA Express Loans for Veterans. The new SBA fees below apply to the FY 2025 gross loan approval amount, including the SBA guaranteed and guaranteed portion.
For SBA loans with a maturity date exceeding 12 months, the upfront SBA Loan Guarantee Fees are now:
- Loans of $150,000 or less: 2% of the guaranteed portion and the lender may retain no more than 25% of the fee (i.e., at least 1.5% must be remitted to the SBA).
- Loans of $150,001 to $700,000: 3% of the guaranteed portion.
- Loans of $700,001 to $5,000,000: 3.5% of the guaranteed portion up to and including $1,000,000 and 3.75% of the guaranteed portion over $1,000,000.
Benefits of SBA Financing to Buy or Sell a Business
SBA financing is a great deal for buyers and business sellers. For Buyers, it provides 10-year financing with as little as a 10% down payment. For Business Sellers, SBA financing offers up to 100% cash at closing (before closing costs).
Without SBA financing, buyers and business sellers would have two options: 1) pay all cash for the business, or 2) a cash down payment plus Seller Financing for the balance of the purchase price. Transactions with Seller financing have much higher down payments than the 10% for SBA Financing, typically 30% to 50% down, and much shorter terms than the 10-year SBA Financing offers, typically 5 years. For Sellers, SBA financing also removes the risk of providing a Seller Note.
At Pacific Business Sales, we have a team of business brokers experienced in SBA financing which is our standard practice for transactions. We obtain SBA financing pre-qualification letters from at least one SBA PLP (Preferred Lending Program) lender on all of our businesses for sale. Our business brokers work closely with buyers, business sellers, and the SBA lender to obtain bank approval and throughout the closing process.
Read more about SBA Financing and Steps in Obtaining SBA Financing
5 Myths and 7 Steps to Obtaining SBA Financing
Additional information on SBA SOP rule changes and SBA Financing
Live Oak Bank SOP 50 10 8 Information
National Association of Government Guaranteed Lenders (NAGGL) SOP 50 10 8 information
