As many of you are already aware, the Small Business Administration (“SBA”) released an updated Standard Operating Procedures (“SOP”) back in August with an effective date of October 1st. Many of those changes had a major impact on some of the SBA lending parameters with the largest portion of the changes directed at business acquisition financing. In fact, the SBA added a completely new addendum to the SOP specifically to address business acquisition financing.
Many of the announced changes in August were viewed to be negative as it made it harder to get certain types of financing done and many new requirements were put in place to specifically tighten the SBA 7A lending parameters for business acquisition financing. I went through that release change by change in my post on the August SOP release.
On Friday September 25th the SBA released their “Technical Updates” to SOP 50 10 8.1. Although these updates were just released, the SOP update is still effective as of October 1st, 2026, providing only a few days for SBA lenders to adjust to these new changes.
The good news based on our read of the SOP changes, these “technical updates” are mostly positive and actually work to correct some mistakes in the updated SOP released in August.
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It is important to note that the SBA made many changes to the SOP. A redlined version of the SOP shows changes on most of the pages of the SOP. However, many of these changes are minor in nature and simple corrections to wording, fixes to mistakes, new references to supporting addendums, or corrected page numbers. The summary here are the key changes we see that were made that could have the biggest impact on SBA lending programs.
The 13 Changes That Matter Most
Below is a summary of the most impactful changes released on September 25th, ordered by how many borrowers each one affects. The rule comes first, with my commentary underneath in italic.
The SBA has revised the rule around trusts guaranteeing SBA 7A loans. Now only if the Trust has a 20% or greater ownership interest must it guarantee the loan. In the case where the Trust has a 20% or greater ownership interest, the trust and any “Trustor” must guarantee the loan as well.
- This update removes the 1% rule that was put in place with the SBA SOP updates in August of 2026 that required any trust with a 1% or greater ownership interest to guarantee the loan. This was greatly impacting investment funds that support SBA loans because often minority ownership interests are held in trust, and the owners of those trusts were not willing to have the trust guarantee the loan.
“Owner Buyout”, defined by the SBA as an existing owner purchasing a portion or the full business, can now include an employee(s) who has worked for the business for at least 24 months.
- Under the SOP updates in August of 2026 only an existing owner of the business could qualify for an Owner Buyout. This change means an employee could qualify for a loan with $0 down to acquire a business under the Owner Buyout guidelines. I still think most lenders will want to see equity or large seller notes when an employee is doing an Owner Buyout, but it gives another avenue for business transfers to happen to key employees who might not have the capital to put the full 10% down the SBA requires for “Initial Acquisitions”, which it defines as a new owner acquiring a business.
The SBA updates in August required Quality of Earnings reports (“QofE”) to be ordered by the lender with specific minimum conditions in the QofE report required for any loan where the business purchase price (excluding real estate being acquired) was $3 million or higher. With the “Technical Updates” the SBA now allows a Bank to review a QofE report ordered by the buyer directly. That report must be reviewed by a qualified vendor of the Bank and accepted by that vendor and must meet the minimum conditions set by the SBA for QofE reports.
- This is a very important change because it fixes a timing issue for when QofE reports are ordered and puts control of the report ordering back in the hands of the buyers. Buyers are going to have to be careful which firms they order QofE reports from and buyers will need to be sure that any QofE report they order meets the minimum conditions outlined in the SOP for QofE reports, but it gives an avenue for buyers to start the QofE process earlier in the process and have more control over that process. Please keep in mind there is likely going to be an additional review charge from the Bank on a QofE report going forward and the risk the lender does not accept that report and will need to charge for their own report.
A loan that facilitates a change of ownership must not have an amortization of more than 10 years unless it includes Special Use Properties. If 85% or more of the value goes towards the real estate on the Special Use Property and business acquisition, then the full loan can qualify for a 25-year amortization.
- This is an important change because the update made in August of 2026 was creating a situation where there would need to be a very small second loan for the business value on these acquisitions with a much shorter 10-year amortization. So long as the business piece of the acquisition is 15% or less of the purchase price, now all of the debt can be amortized over 25-years. This will impact transactions for properties such as car washes, gas stations, hotels, senior care facilities, self-storage facilities, etc. where a majority of the business value is in the real estate itself.
Working capital adjustment provisions on business acquisitions contained in the Purchase and Sale Agreement are not a rebate to the Borrower and that cash may be retained by the Borrower for working capital in the business.
- This was not clearly defined in the SOP updates in August of 2026 that put additional conditions on rebates, and some lenders were concerned any cash left in the business at closing might need to go back to the Bank to paydown the loan. The SBA has now verified any adjustments made for working capital, including cash the seller leaves in the business, do not need to be used to reduce the SBA 7A loan so long as that adjustment is outlined in the sale and purchase agreement.
When 7A loans are used for multiple purposes (excluding business acquisitions), the maturity may be blended or if 51% or more of the use of the 7A loan proceeds are for real estate, the maximum maturity may be for 25 years on all of the debt. Again, this excludes business acquisitions.
- This is a big clarification because the updates announced in August removed the ability to do a 25-year amortization on business acquisitions when 51% or more of the debt was for real estate, and many lenders thought this condition applied to all SBA loans. Now it is clear you can amortize other SBA 7A loans over 25-years if 51% or more of the use of loan proceeds is for the real estate.
For business acquisitions, if there is not a clearly defined continuity of operations and the Applicant is not continuing the seller’s business operations, the Lender may evaluate the transaction as a start-up. The Lender must apply all applicable start-up requirements set forth in the SOP.
- The updated SOP in August of 2026 largely removed any ability for a business acquisition to occur where the business did not cash flow in the last fiscal year at a minimum of a 1.25x debt service coverage ratio (“DSCR”). These new provisions allow lenders to still make loans to under-performing businesses where there is a clear plan to turn those businesses around. Many SBA lenders will not do turn around loans, but at least the option is now available for such loans.
You can once again use an SBA 7A small balance and Express loans to acquire a business so long as the business purchase price is $350,000 or less.
- The update announced in August removed the ability to use SBA 7A small balance or express loans to acquire a business. I am not sure how many lenders will use these products going forward for business acquisitions as the lender must do much of the same work as for a standard business acquisition, but the option at least exists.
For SBA 504 loans, there is no longer a minimum term on the Bank portion of the SBA 504 loan.
- This was allowed prior to the SOP updates announced in August. Although most lenders do not exceed an amortization of 10 years for equipment and 25-years for real estate on the Bank portion of an SBA 504 loan, some lenders do and this change at least gives lenders the option to offer a longer term if they so choose on the Bank portion of the debt.
If you are using an SBA 504 loan and there is equipment included in the transaction, the loan maturity can now be 25 years on all of the SBA 504 debt if the real estate portion of the use of loan proceeds is 51% or more of the total use of loan proceeds (this used to be 75%).
- This is a big change for SBA 504 loans that include equipment and could impact business acquisition loans where the SBA 504 loan is being used to finance owner-occupied real estate and equipment. The extended amortization will help improve the cash flow to service debt. Although not all Banks are going to be willing to do a 25-year amortization on their portion of the debt if almost half of the debt is related to equipment, at least the option exists.
The one negative change in this release
The SBA does not consider as part of the equity injection expenses related to education, advisory services, or fees paid by the Applicant to an Agent as prepaid expenses that qualify for equity.
- This is one of the negative impacts on the “Technical Updates”. This means buyers will need to cover these expenses out of pocket. We can try to build additional working capital into SBA 7A loans to reimburse for these expenses so long as the cash flow supports the higher loan amount, but ultimately if a buyer is paying third parties to support their search on the front end, they need to be aware they may have to eat those costs.
The Bank may rely on projections for repayment of loans secured by Special Use Properties if the financial information cannot be obtained. If the loan is fully secured by the collateral, the lender may rely on projections to satisfy the DSCR requirement.
- This is big if the property is currently under-performing and the buyer / guarantor has experience to turn it around. This type of loan was not allowed under the changes announced in August of 2026.
When there is an acquisition of a division of a sole proprietorship, and the SBA lender is unable to obtain tax transcript or financial statements that identify the division or segment being purchased, the SBA lender must use alternative forms of third-party verification such as a third-party CPA prepared or reviewed financial statements, tax payment records, etc.
- This provides tighter guidance on making loans to entities that cannot provide accurate financial reporting for a division.
Change 7 above is the one that reopens deals the August release had closed off. It is worth reading alongside the 1.25x DSCR requirement, which is the rule it creates an exception to. Change 11 is worth reading alongside where your SBA down payment can actually come from, because it narrows what counts.
One disclosure before I get to what the SBA still has not fixed. Commercial Lending X earns a fee when a loan closes, so I have a financial reason to want a deal to be financeable. Weigh my read of these changes accordingly.
What Is Still Unresolved
Please note that these “technical updates” do not appear to clarify all of the questions lenders have regarding the updated SOP released in August. There is still some confusing language in the updated SOP, some of which the SBA has issued separate guidance on and some of which they have not provided clear guidance on.
The updated redlined version I reviewed still has two Appendices missing from the document, Appendices 9 and 13. Both are skipped in both the table of contents as well as in the document itself. Although this is not a concern because it does not appear they exist at all, it is a bit disappointing the SBA would miss such a big error in the document with this new “technical update”.
Where This Leaves Buyers
Most of the above changes are positive in nature and will help individuals better utilize the SBA loan programs. Although still not perfect, the SBA loan programs continue to be the best option for buyers looking to minimize down payments on the acquisition of businesses, owner-occupied commercial real estate, equipment, etc., secure the longest loan terms available in the market for such assets, and to get loans done that are not fully collateralized by hard business assets.
If you have any questions regarding any of these changes or the SBA loan programs in general, we would love the opportunity to connect with you to discuss these programs and see how we might be able to assist you. You can reach me directly at brad@commerciallendingx.com or by phone at 630-988-4852.
Brad Hettich, President
Commercial Lending X
This post is general information only and is not advice on a specific transaction. SBA program parameters change. This reflects the Technical Updates to SOP 50 10 8.1 released September 25, 2026.
Brad Hettich
President, Commercial Lending X
~30 years in commercial banking. Originated close to $1.4 billion, underwritten $2.5 billion+. Brad writes about SBA lending, deal structuring, and commercial credit markets from the perspective of someone who has been on both sides of the desk.
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The Client was seeking to utilize the SBA 7A loan program to acquire all of the business assets of a project management solutions business. We were able to secure an SBA 7A approval with a traditional lender at a solid rate to facilitate the acquisition.
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The Client was seeking to utilize the SBA 7A loan program to acquire all of the business assets of a truck bed installation and service business. We were able to secure an SBA 7A approval with a traditional lender at a solid rate to meet the Client's needs.
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