SBA issued Procedural Notice 5000-846607, Implementation of the Final Rule on Affiliation and Lending Criteria for the SBA Business Loan Programs (88 FR 21074, effective May 11, 2023) and Raising of the Maximum Loan Amount for 7(a) Small Loans (notice effective May 9, 2023).  The stated purposes of the notice are to revise SOP 50 10 6 to implement the cited final rule and to increase the maximum size for a 7(a) Small Loan from $350,000 to $500,000.  But the notice also makes other changes to current program requirements not specifically included in the final rule.  These include, among others, raising the threshold for requiring collateral from $25,000 to $50,000. 

Among the regulatory changes being implemented are:

  • Per 13 CFR 120.150, What are SBA’s lending criteria? –
    • Revising the underwriting criteria for 7(a) Small Loans to allow lenders to follow the same written policies and procedures that they have established and implemented for their similarly-sized, non-SBA guaranteed commercial loans, including, in addition to using SBA’s SBSS Score, using the same business credit scoring model that they use for their own similar commercial loans; allowing lenders to make decisions regarding collateral requirements; and allowing lenders to make decisions regarding equity injection requirements.   
    • Revising the underwriting criteria for Standard 7(a) loans to eliminate the requirement for a mandatory equity injection for loans to start-up businesses, and allowing lenders the discretion to reduce the mandatory injection for loans being made to finance changes of ownership, and to allow lenders to use the same processes for equity injection verification that they use for their similarly-sized, non-SBA guaranteed commercial loans.
  • Per 13 CFR 120.160(c), Hazard Insurance – revising SBA’s hazard insurance requirements to require for 7(a) loans over $500,000 hazard insurance on real and personal property collateral, and, to require for 7(a) loans under $500,000, hazard insurance for all real estate acquired, refinanced or improved with 7(a) loan proceeds.
  • 13 CFR 120.193, Reconsideration after denial – authorizing the Director, Office of Financial Assistance, or designee to make final decisions on declined non-delegated loan applications.
  • 13 CFR 120.130, Restrictions on uses of proceeds, and 13 CFR 120.202, Restrictions on loans for changes in ownership – allowing 7(a) loan proceeds to be used, in addition to other previously authorized uses, to finance partial changes of ownership and allowing a seller to remain in the business as an owner, officer, director, stockholder, or key or other employee.
  • 13 CFR 121.301(f), What size standards and affiliation principles are applicable to financial assistance programs? – adopting the language in the final rule relating to determinations of affiliation, and announcing that, effective May 11, 2023, SBA will no longer publish the SBA Franchise Directory and SBA lenders “will no longer be required to enter a franchise identifier number into E-Tran”. 

The notice specifies that the changes are effective for “all applications received by SBA on or after May 11, 2023”.  But it also indicates that for, any previously declined applications, and any applications currently in process, lenders may request reconsideration if the applicants would benefit from reconsideration under the new requirements.

NAGGL is still digesting the information contained in the notice and will update this release in the next few days if necessary to provide more detailed information on how the regulatory changes are being implemented and on the additional changes being made by the notice.  In the meantime, please see the notice for complete details on the SOP revisions.