On June 1, 2025, the SBA implemented major changes through its updated Standard Operating Procedure. These SBA SOP 50 10 8 updates affect both the 504 and 7a loan programs, introducing new guidance on refinancing, ownership eligibility, documentation, and lender responsibilities. While some revisions streamline existing processes, others significantly reshape compliance requirements. Here’s what lenders need to know.
504 Specific Changes:
Expanded 504 Energy Financing
Restored the $16.5 million cap on Energy Public Policy Projects. This means an applicant and its affiliates may obtain up to $16.5 million in the aggregate, capped at $5.5 million per project, for projects that meet the 504 Energy Public Policy goal. Applicants may also obtain up to $5 million in standard 504 debentures.
Enhanced 504 Debt Refinance Options
- Allows refinance of qualified debt up to 90% loan-to-value with or without cash out, removing the limit of 85% when cash out is taken
- Removed the cap on cash out of 20% of the collateral value – may refinance and obtain cash out for eligible business expenses up to 90%.
- Added “other secured debt” as an eligible business expense for cash out, allowing certain other debt secured by the same fixed asset to be paid off with cash out proceeds.
- Removed the requirement for a 10% savings “Substantial Benefit” when refinancing Federal debt. New guidance states there must be a reduction in the payment amount attributable to the debt being refinanced, excluding cash out.
- Removed requirement for CDC to obtain written authorization from a 7a lender when refinancing Federal Debt. CDC must notify the lender 10 business days prior to file submission, no response required.
- For 504 Debt Refinance with Expansion, added prior guidance that any amount of the existing debt that does not exceed 100% of the cost of the expansion project may be refinanced.
Key Changes Affecting Both 7a and 504:
Added language that the Applicant business must be created, organized or incorporated in the U.S. its territories or possessions.
Franchise Directory Reinstated
- The Franchise Directory has been reinstated for loans approved on or after June 1, 2025
- Franchisors and Distributors have until July 31, 2025 to sign a Franchisor or Distributor Certification to be in the Directory
- SBA will no longer require an addendum for brands that are listed in the directory as SBA has moved to an on-time Franchisor Certification model.
- SBA will not be reviewing Management Agreements unless part of the franchise documentation. If not part of a franchise, the lender is responsible for the review.
Updated Environmental Review Process
SOP 50 10 8 clarifies that lenders are responsible for completing and submitting all required environmental documentation through E-Tran. The SBA no longer accepts submissions through its loan centers, and failure to follow the updated process may affect loan guarantee eligibility.
Citizenship and Ownership Requirements
All direct and indirect owners (OC, EPC, other guarantor entities) must meet updated citizenship criteria:
- A U.S. Citizen (No verification needed)
- A Naturalized Citizen (No Verification needed)
- A U.S. National (born in American Samoa and Swains Island)
- verification is required for all direct and indirect owners
- A (Unconditional) Lawful Permanent Resident
- Individuals holding conditional LPR states are not eligible
- Verification is required for all direct/indirect owners with U.S. Nation or LPR Status
SOP 50 10 8 introduces stricter ownership and verification standards, requiring that 100 percent of direct and indirect owners and guarantors be eligible individuals and maintain a primary residence in the United States or its territories. Borrowers must certify that no owner is ineligible and provide lawful permanent resident (LPR) alien registration numbers where applicable. Lenders are responsible for entering complete ownership data, including dates of birth, into E-Tran and must obtain clearance through the Sacramento Alien Verification System before loan submission. This replaces the prior requirement of 51 percent qualifying ownership and increases emphasis on full transparency and compliance.
Revised Credit Elsewhere and Personal Resources Review
While this is not a return to the previous Personal Resources Test, SOP 50 10 8 reemphasizes the lender’s responsibility to ensure the applicant and 20% or greater owners do not have readily available funds for the loan. Reasonable exceptions now include savings for future medical needs, education expenses(including for the owner’s children), retirement, capital expenses over the next 24 months, and working capital.
New Business Definition
A “new business” is now defined as one that has been generating revenue for two years or less at the time of loan approval. Operations are deemed to begin when the business begins generating revenue. This clarification helps lenders determine eligibility and assess credit risk more consistently across early-stage applicants.
Updated Guidance on Ineligible Businesses and Business Models
The SOP also outlines new restrictions for certain business models. Passive income businesses such as co-working spaces, salon suites, and ghost kitchens are ineligible unless all of the following conditions are met:
- The revenue is earned through membership dues (not rent); and
- The business’s customers do not have an assigned space; and
- The business is responsible for the necessary equipment
Additionally, the SBA has clarified ineligibility for businesses involved in marijuana, hemp, and CBD products. While marijuana-related businesses remain fully ineligible due to federal law, hemp and CBD businesses must meet specific compliance standards. These include verification that products contain no more than 0.3 percent THC and are otherwise lawful under federal and state regulations.
Form 159
Form 159 must now be signed by the applicant, agent, and lender. If the lender is also acting as the agent, they must sign the form twice.
Guaranty Requirements
The SBA has replaced the term “beneficial owner” with “direct or indirect owner.”
- The SBA Lender must obtain a financial statement from all individuals and entities guaranteeing the loan, except Supplement Guarantors
- Removed Substitution of Personal/Corporate Guaranty Liability
- All guarantors must comply with Citizenship requirements
Hazard Insurance Requirement
For all 7a and 504 loans greater than $50,000, hazard insurance is now required for all assets pledged as collateral.
C-PACE Prohibition
SBA Lenders may not permit a C-Pace loan to be made on a property that has or will have a 504 or 7a loan.
7a Specific Changes
7a Lenders that have delegated authority must process all loan applications using their delegated authority. May only submit via E-Tran under non-delegated procedures when the loan will refinance the Lenders same institution debt.
For loans with a maturity that exceeds 12 months upfront fees for fiscal year 2025 have been reinstated. The structure is as follows:
- For loans of $150,000 or less: 2% of the guaranteed portion. The Lender may retain no more than 25% of the fee (i.e., at least 1.5% must be remitted to SBA).
- For loans of $150,001 to $700,000: 3% of the guaranteed portion.
- For loans of $700,001 to $5,000,000: 3.5% of the guaranteed portion of the loan up to and including $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.
Merchant cash advances and factoring agreements remain ineligible for refinance. SBA also introduced the category of “7a Small Loans,” which includes loans of $350,000 or less and excludes SBA Express, CAPLines, EWCP, and pilot programs. SBA Express loans remain limited to $500,000 and may only be made by lenders with Express authority. The SBA has also clarified that search fund acquisitions are not eligible for 7a financing.
What This Means for Lenders
These updates represent one of the most comprehensive SOP revisions in recent years. Lenders should review their internal processes, retrain staff, and ensure their systems align with the new standards. The SBA’s intent is to improve clarity, expand borrower access, and enhance program compliance.
For more detailed information, refer to the full SOP 50 10 8 or contact your SBA District Office for support. Or reach out to one of our Business Champions to talk through what you need to know!