New SBA SOP: What You Need to Know About 50 10 8

On April 21, 2025, the Small Business Administration (SBA) announced the release of a new Standard Operating Procedure (SOP) through Information Notice 5000-866746.  The new SOP, version 50 10 8, will replace version 50 10 7.1 on June 1, 2025 and is available now on the SBA’s website. However, SBA has already indicated various adjustments are likely to be made to that initial draft and that those adjustments will come in the form of a ‘technical corrections’ version of the SOP 50 10 8, or through additional Informational Notices.

In the meantime, here is what we know about the SOP 50 10 8 at a high level:

• The new SOP will become effective June 1, 2025 and will apply to all applications that are issued a loan number on or after that date.
• SBA is largely re-implementing requirements that were in place before January 2021, including restoring 7(a) underwriting criteria, reinstituting the SBA Franchise Directory, re-affirming that SBA lenders determine whether an applicant is eligible for a loan guaranteed by the SBA, and eliminating the “do what you do” philosophy from the SOP.

Below, we take a deeper look at many of the key changes to the SOP 50 10 8, particularly those changes that will impact processing and loan structuring. It should be noted that while the new SOP 50 10 8 covers both the 7(a) and 504 loan programs, the summary below is focused on changes impacting the 7(a) loan program.

SBA 7(a) Small Loans

The 7(a) Small Loan size threshold is being decreased from $500,000 to $350,000, meaning a more traditional approach to underwriting will be needed on all loans over $350,000. Lenders will still be able to use a credit scoring underwriting approach on loans up to $350,000, however, the SBA’s proprietary Small Business Scoring Service (SBSS) score minimum is increasing from 155 to 165. The SBA has also changed equity injection requirements on small loans and those changes are summarized in the Equity Injection section below.

Equity Injections

The outgoing version of the SBA SOP (50 10 7.1) required less equity into projects from the applicant than SBA had historically been willing to accept. SOP 50 10 8 largely returns equity injection requirements to historical precedents and the end result, regardless of loan size, is shown below:

• Start-up businesses (i.e. those generating revenue for their operations for 1 year or less) require an equity injection of at least 10% of the total project costs.
• Complete changes of ownership (excluding ESOPs) require an equity injection of at least 10% of project costs.
  • In changes of ownership across the board, subordinated seller debt may only be used to satisfy 50% of the injection requirement and is only able to count towards the injection if the seller debt is on full standby (no payments of principal or interest) for the life of the loan.
• Expansion loans are eligible for as little as $0 cash equity injection from the applicant when:
  • Applicant and seller business operate in the same 6-digit NAICS code.
    • If asset purchase, ownership in the applicant is the same pre-close as post-close.
    • If stock purchase, applicant and selling entities are co-borrowers.
  • Applicant and selling business are in the same geographic area, meaning the acquiring entity is located within a reasonable distance of the selling business, allowing management to exercise similar daily control over both locations.
• SBA loans may finance more than 90% of the purchase price of a partner buyout if:
  • The remaining owner(s) certify that they have been actively participating in the business operation and held the same or an increasing ownership for at least the past 24 months AND the applicant’s balance sheets for the most recently completed fiscal year and current quarter reflect a debt-to- worth ratio of no greater than 9:1 prior to the change of ownership
    • If the above conditions are not met, the buyer(s) must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change of ownership OR in an amount equal to at least 10% of the purchase price of the business as reflected in the purchase agreement, whichever is less.
• SBA loans may finance more than 90% of the purchase price of a partial change of ownership if:
  • The business balance sheets for the most recently completed fiscal year and current quarter reflect a debt-to-worth ratio of no greater than 9:1 prior to the change of ownership.
    • If the above condition is not met, new and/or existing owners must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change of ownership OR in an amount equal to at least 10% of the purchase price of the business as reflected in the purchase agreement, whichever is less.

Citizenship Requirements

The new SOP will include the citizenship requirements previously announced via SBA Policy Notice 5000-865754 which updated policies to comply with Executive Order 14159 regarding citizenship requirements for obtaining 7(a) and 504 loans. In short, SBA financing will be limited to businesses with 100% direct and/or indirect owners (previously referred to as beneficial owners) and SBA-required guarantors who are U.S. Citizens, U.S. Nationals, or Lawful Permanent Residents.

SBA Franchise Directory

The SBA Franchise Directory will be restored and will list brands meeting the Federal Trade Commission’s (FTC) definition of a franchise that are eligible for an SBA loan. If a brand meets the FTC definition of a franchise, it must be on the Franchise Directory to qualify for franchisee SBA financing. At the request of a brand, SBA will include brands on the Franchise Directory that do not meet the FTC definition of a franchise but are eligible for SBA loans. Franchise brands can interface with [email protected] to complete the Franchise Directory registration process.

Debt Refinancing

SBA has removed Merchant Cash Advance and Factoring agreements from the list of loans and debt facilities eligible for refinancing.

Partial Changes of Ownership

Any buyer in a partial change of ownership who is gaining any amount of direct or indirect ownership interest in the operating company will need to be a co-borrower on the loan with the operating company. The SBA will now require any seller(s) who remain a direct or indirect owner of less than 20% to provide a limited guaranty for the full loan amount for a period of two years after loan disbursement. All 20%+ post-close owners must fully guarantee the SBA loan. Additionally, the SBA will no longer allow multi-step partial changes of ownership and has clarified that while 7(a) loans can fund a partial change of ownership in an operating company, they cannot finance a partial change of ownership in an eligible passive company in an EPC/OC structure transaction.

Loan Processing

SBA lenders with delegated authority—like Grasshopper—meaning the ability to approve SBA loans without submission of the loan approval request to a specialist with the SBA for concurrence, will be required to approve all loans using their delegated authority with minimal exceptions. This change appears to be geared towards leaving the SBA’s general processing center capacity for those lenders without delegated authority.

In addition to the topics covered above, SBA used SOP 50 10 8 to implement standards around review of management agreements, requirements for business property hazard insurance, equity injection verification, credit elsewhere discussion, tenant improvement reimbursement policies, among other items.  The article above provides a summary of many large changes to the SOP, but loan program participants are advised to fully read SOP 50 10 8 to ensure an understanding of all changes.

Have questions about the latest SOP changes or want to explore how SBA lending can support your business goals? Connect with Justin Whitson, Business Development Officer, at [email protected].