The U.S. Small Business Administration (SBA) regularly updates its Standard Operating Procedures (SOP) Manual, and its newest release, SBA SOP 50 10 8.1, is effective as of October 1, 2026.
We’ve created this guide to highlight key changes that may impact banks, credit unions, brokers, and small business owners seeking SBA financing.
In this overview, you’ll learn about changes to the SOP’s core requirements and SBA 7(a) and SBA 504 programs. Use this guide to stay up to date and navigate changes with confidence as you work with your small business clients. As always, if you have questions on SBA programs, Pursuit is here to help!
Key Changes to SBA Core Requirements
Key Changes to the SBA 7(a) program
Updates to the Types of Changes of Ownership
Key Changes to the SBA 504 program
Key Changes to SBA Core Requirements
Before reviewing information specific to SBA 7(a) and SBA 504 programs, here’s an overview of important modifications and additions for the SBA Core Requirements. These form the basis of SBA program eligibility.
Located in the United States
- The business must be created, organized, or incorporated in the United States.
- Businesses that directly or indirectly export to prohibited countries or individuals on the Office of Foreign Assets Control (OFAC) sanctions list are ineligible.
Types of Ineligible Businesses
- Businesses that purchase a stand-alone asset operated on a passive basis are ineligible.
Professional Services
- Businesses requiring professional licenses may be eligible when the ownership structure meets applicable state requirements.
- Lenders must document eligibility and ownership requirements in the loan file.
Leveled Business Models
- Businesses using a model in which the owner relies on a middle-level operator and does not own the contracts supporting operations are ineligible.
Citizenship and Residency
- Direct and indirect owners, along with SBA-required guarantors, must be U.S. citizens or U.S. nationals with a principal residence in the United States.
Credit Not Available Elsewhere
- Liquidity of the Applicant: This removed the various categories and replaced that with the generalized “capital expenses over the next 24 months and for working capital.”
Office of Foreign Assets Control (OFAC) Sanctions List
- Applicant businesses and owners are subject to the OFAC sanctions-list requirement.
Loans to Employee Stock Ownership Plans (ESOPs)
- Clarifications were added for ESOP-related Changes of Ownership.
- An independent business valuation is not required for certain ESOP transactions when an Employee Retirement Income Security Act (ERISA)-compliant ESOP valuation is available.
Uses of Proceeds
- SBA loan proceeds cannot be used to purchase excess land that is not for immediate use as part of the project.
- A C-PACE loan cannot be placed on a property that has or will have an SBA 7(a) or SBA 504 loan.
Debarment, Suspension and Exclusion
- Businesses required to have a USDOT (U.S. Department of Transportation) number must have that number verified through the SAFER Web system in addition to the SAM (System for Award Management) exclusion search.
SBA Prohibited Use of Funds
- An SBA loan may not refinance a debt in which the creditor is an agent involved in the loan (e.g., a Referral Agent).
Guarantees and Documentation
- The Personal Financial Statement (PFS) validity period changed to 90 days.
- Non-owner spouses are not required to sign the PFS.
- New trust-guarantee requirements apply when one or more trusts own 20% in aggregate of an applicant.
- An additional IRS tax-transcript verification method was added for applicants who have filed amended returns.
- The SBA has added two specific exemptions for when Hazard Insurance requirements can be waived.
Key Changes to the SBA 7(a) program
In addition to the Core Requirements outline in the previous section, the following modifications and additions are specific to the SBA 7(a) program.
Debt Refinancing
- Seller debt in a change-of-ownership transaction must be in place and current for at least 36 months to be eligible.
- Factoring agreements remain ineligible for refinancing.
- Merchant Cash Advance-type agreements have limited refinancing eligibility if the original agreement has been converted to a term loan, has amortized for at least 24 months, with no additional agreements. If the Sales-Based Repayment Agreement is still active, it is not eligible for refinancing.
- SBA-guaranteed proceeds may not be used to refinance debt originally incurred for an ineligible SBA purpose at the time it was originally made, unless the condition causing the ineligibility no longer exists.
- A lender can process a non- SBA Same Institution Debt refinance under Preferred Lender Program (PLP) delegated authority; however, a lender may not use delegated authority to reduce the lender’s credit exposure to the applicant.
- Debt refinancing with MARC Loan proceeds is eligible if the original purpose of the debt to be refinanced was for working capital purposes.
Change of Ownership
The new Appendix 15 consolidates all change-of-ownership policy and sorts transactions into four categories:
1. Initial Acquisition
2. Business Expansion
3. Owner Buyout
4. ESOP & Cooperative
Change of Ownership transactions that involve goodwill, or any financing of intangible assets of any size, now requires a third-party business valuation when the purchase price of the business is $350,000 or greater.
The total debt eligible to support a Change of Ownership transaction (including seller debt that is not on full standby) is limited to the business valuation amount and must be supported by the Debt Service Coverage of the applicant. Business Purchase Price excludes all owner-occupied commercial real estate assets being acquired in the transaction.
Buyer Rebates must be applied to pay down the principal balance of the SBA 7(a) loan that funded the Change of Ownership. Remaining funds cannot be used for business purposes and applying the rebate doesn’t trigger a subsidy recoupment fee.
For a Business Expansion or Initial Acquisition, the seller cannot stay on as an officer, director, or employee but may stay on in a consulting capacity for a transitional period of up to 24 months.
For Change of Ownership blended projects that do not include owner occupied special purpose real estate, the real estate must be structured as either a separate loan or on a blended amortization. Additionally, the asset class that made up greater than 50% of the proceeds can no longer dictate the term of the loan.
If there isn’t a clearly defined continuity of operations and the applicant isn’t continuing the seller’s business operations the lender may evaluate the transaction as a start-up and not under the business acquisition rules.
Updates to the Types of Changes of Ownership
- Initial Acquisition: Defined as Change of Ownership where the buyer is not an existing owner or employee of the business for the past 24 months and does not own another operating business in the same NAICS and purchasing a majority interest in the target business.
- Business Expansion: Defined as a Change of Ownership transaction in which an existing operating business purchases another.
Owner Buyout
- Existing Owner Buyout: A change of ownership between existing owners or employee(s) that have worked at the company for the past 24 months. Indirect and beneficial owners must personally guarantee the loan.
- Partial Change of Owner: Loan proceeds may be used to fund the purchase of all or a portion of one or more owner’s interest in the business, or of the business itself and where at least one of the original owners remains as an owner after the sale and personally guarantees the loan.
- One of the original owners must remain after the sale and must personally guarantee the loan.
- Certain individuals not currently employed by the business may acquire less than 50% of the equity in an owner-buyout transaction and may not become the largest direct or indirect shareholder.
ESOP & Cooperatives
Same designation as prior SOP.
Debt refinancing as part of a change of ownership
This reiterates that seller-financing must have been in place and current, not on standby, for 36 months to be eligible and must meet the 10% improvement in monthly payment.
Credit Standards
New financial due diligence requirements apply to Changes of Ownership. Initial Acquisition and Business Expansion transactions with a purchase price of $3 million or more require a Quality of Earnings report in addition to a third-party business valuation, except Owner-Occupied Special Purpose Real Estate where no Quality of Earnings Reports are required.
Equity Injection & Debt Service Coverage
Equity injection requirements were clarified for Change of Ownership transactions involving real estate where the equity injection must be pro-rata between the real estate loan and the business acquisition loan. Additionally, certain limited equity sources may provide no more than 50% of the required equity injection.
For Changes of Ownership, minimum debt service coverage (DSC) requirements now vary by transaction type:
- Initial Acquisition: 1.25x
- Business Expansion: 1.15x
- Owner Buyout: 1.25x
- ESOP/COOP: 1.25x
Lenders, like Pursuit, must evaluate post-closing projections but cannot rely on those projections to meet the DSC requirement.
SBA Express Reissuance
- Line Retention: Lenders may reissue an Express Loan to retain the revolving period at any point before amortizing payments begin. The credit memo must address overall line utilization and justify why the line needs to be retained.
- Extended Amortization: Lenders may reissue an Express Loan to term out the existing loan up to 10 years. This allows a longer amortization term than initial repayment term.
Equity Injection
Only eligible prepaid expenses may be counted as equity injection. Prepaid expenses not considered equity include education, advisory services, or fees paid to an agent.
Financial Analysis
Financial statements used for financial analysis will be done so in order of thoroughness:
- Audited Financial Statements
- Reviewed Financial Statements
- CPA Compiled Financial Statements
- Corporate Tax Returns
Other SBA 7(a) Updates
For collateral requirements, SBA 7(a) loans to businesses that had a change of ownership within 36 months prior to the application date, an appraisal is required, along with either:
- A review of the appraisal by another qualified appraiser
- A site visit by a senior member of the lender’s staff
MARC eligible industries were expanded to include certain wholesalers and businesses within the food supply chain. The maximum MARC loan amount for non-manufacturers is $2 million and the maximum guarantee amount is $1.5 million.
Secured Overnight Financing Rate (SOFR) and Treasury Rate parameters were added to interest-rate requirements.
The majority of items for debt refinancing, change of ownership, interest rates, and collateral have been consolidated into Appendices 14–20.
Key Changes to the SBA 504 program
In addition to the Core Requirements outline in the previous section, the following modifications and additions are specific to the SBA 504 program.
Primary Program Eligibility
Job opportunities have to be at the project facility.
Third-Party Lender Participation
For projects totaling $5 million or more:
- The Certified Development Company (CDC) must obtain and incorporate the Third-Party Lender’s (TPL) underwriting analysis and credit memo into the CDC credit memo, or the TPL can provide it directly to the SBA.
- The TPL term, with limited exceptions, cannot exceed the debenture term.
Eligible Uses of Proceeds
For debt refinancing without expansion, debt must be fully disbursed at least six months prior.
504 Loan and Debenture Terms
The aggregate $16.5 million cap for eligible Energy Public Policy Projects was removed.
Credit Standards
Financial reports are prioritized in the following order:
- Audited Financial Statements
- Reviewed Financial Statements
- CPA-Compiled Financial Statements
- Corporate Tax Returns
The SBA removed the requirement for business credit reports.
Debt Service Coverage (DSC)
The DSC requirement was changed to 1.15
Collateral
CDCs must review title documents to determine whether property is subject to non-environmental open-ended indemnification provisions.
Submission of Loan Application
A new process was added for reconsideration of loans declined by Sacramento Loan Processing Center (SLPC), including a final appeal process through Director, Office of Financial Assistance (D/FA).
SBA Terms and Conditions
A process was added for requesting an extension to the disbursement timeframe.
Closing, Disbursement, and Post-Closing
Before closing, the CDC must ensure there is no open Payment Integrity Information Act (PIIA) Review. Any pending review must be fully resolved.
Pursuit is a key leader in SBA lending
With more than 70 years of SBA lending experience, the Pursuit team can work with you and your clients to better understand the SOP changes and how they’ll impact our work together. It’s our goal to ensure that you and your small business clients are knowledgeable and confident, so you can get the best financing option for you and your client.
Contact us to learn more about how we can help you support the small business owners and communities you serve.
