The SBA Just Changed Its Loan Rules. Here's What That Means for You.

What Happened?

On June 1, 2025, the Small Business Administration (the SBA) changed its rulebook. The old rulebook was called SOP 50 10 7.1. The new one is called SOP 50 10 8.

SOP stands for "Standard Operating Procedure." Think of it like an instruction manual that tells banks and lenders how to give out SBA loans. When the SBA changes this manual, it changes what you need to qualify.

And these changes are big. The new rules make it harder to get an SBA loan than it was last year. More paperwork. More money upfront. Tougher credit checks.

Let's break it all down.

Why Did the SBA Do This?

Here's the short answer: too many loans went bad.

In 2024, the SBA's main loan program (called the 7(a) program) lost money for the first time in over 10 years. More businesses were failing to pay back their loans. The SBA says this happened because too many people who weren't ready for a loan got approved.

So the SBA tightened things up. They went back to stricter rules that were in place before 2021. The old approach, which let lenders "do what they do," is gone. Now there are clear, firm requirements for every loan.

The 8 Biggest Changes at a Glance

Here's a quick look at what changed. We'll go deeper on each one below.

What Changed	Old Rule	New Rule
Collateral required	Loans over $500K	Loans over $50K
Down payment	Often $0	10% minimum
Seller notes (max)	Could cover full equity	50% of equity, full standby only
Credit score (SBSS)	155	165
Ownership citizenship	51% U.S. owners	100% U.S. citizens or permanent residents
Small loan threshold	$500K	$350K
MCA refinancing	Allowed	No longer allowed
Personal resources test	Not required	Lenders must check

Collateral: The Biggest Shock

What is collateral? It's something valuable you promise to give the bank if you can't pay back your loan. It could be a building, equipment, a vehicle, or other assets your business owns.

What changed

Before June 1, you only needed collateral if your loan was $500,000 or more. That meant most small SBA loans didn't need any.

Now, any SBA loan of $50,000 or more needs collateral. That's a 10x drop in the threshold.

Down Payments Are Back

Under the old rules, you could sometimes get an SBA loan with zero money down. That's over.

Now, if you're starting a new business or buying an existing one, you need to put at least 10% down. And at least 5% of that must be cash from your own pocket. You can't borrow your entire down payment.

Here's an example

Let's say you're buying a business for $300,000.

• Your down payment: $30,000 (10% of $300,000)
• At least $15,000 must come from your own cash
• The other $15,000 could come from a seller note (more on that next)

Seller Notes Got a Haircut

What's a seller note? When you buy a business, sometimes the seller says, "You don't have to pay me everything right away. You can owe me part of it." That's a seller note. It's like an IOU to the seller.

Before, a seller note could count as your entire down payment. Not anymore.

The new limits

• A seller note can only cover 50% of your required down payment
• The note must be on full standby for the entire life of the SBA loan
• "Full standby" means the seller gets zero payments until your SBA loan is completely paid off
• Notes with scheduled payments no longer count toward your equity

Higher Credit Score Required

The SBA uses something called the SBSS score (Small Business Scoring Service). It's different from your personal FICO score. It looks at both your personal credit and your business credit together.

The minimum SBSS went from 155 to 165.

For your personal credit, most SBA lenders want to see a score of at least 650. But if you want the best rates and the smoothest approval, aim for 690 or higher.

New Citizenship Rules

This is one of the biggest policy shifts.

Before: A business only needed 51% U.S. ownership to qualify for an SBA loan. If you owned half and a foreign national owned the other half, you could still apply.

Now: 100% of all owners must be U.S. citizens or lawful permanent residents (green card holders). This includes minority owners, guarantors, and key employees.

People with the following statuses do not qualify:

• Visa holders (any type)
• DACA recipients
• Refugees or asylees
• Conditional permanent residents
• Undocumented individuals

Lenders must verify citizenship for every owner and confirm it in the loan file.

The Franchise Directory Is Back

If you're buying a franchise, this affects you.

The SBA used to have a directory of pre-approved franchises. They got rid of it, but now it's back. Here's what it means:

• If your franchise is in the directory, loan processing is faster and easier
• If it's not in the directory, your lender has to do a full review of the franchise agreement
• Franchisors had until July 31, 2025 to sign a new certification to stay listed

If you're looking at a franchise, check whether it's on the SBA's approved list before you start the loan process.

A Few More Changes Worth Knowing

No more refinancing MCAs into SBA loans

If you took out a merchant cash advance (MCA), you used to be able to refinance it into an SBA loan. That door is now closed. MCAs and factoring agreements can no longer be rolled into SBA debt.

Personal resources test is back

Lenders now have to check if you have enough personal savings or liquid assets to fund the project yourself. If you have plenty of cash sitting around, the SBA might ask why you need a government-backed loan. There are allowances for retirement savings, college funds, and medical reserves.

Small loan threshold dropped

The "small loan" category used to cover loans up to $500,000 with less paperwork. Now it only covers loans up to $350,000. Anything above that needs full documentation, including tax transcripts and hazard insurance proof.

What Should You Do Now?

If you're planning to apply for an SBA loan, here's a simple game plan:

1. Check your credit. Pull your personal credit report. If it's below 650, work on it first. Pay down balances and dispute any errors.
2. Save your cash. You'll need at least 10% down for startups and acquisitions, with at least 5% in cash. Start setting money aside now.
3. Inventory your assets. Since collateral is required on almost all loans, know what you can pledge. Real estate, equipment, and vehicles all count.
4. Verify your ownership. Make sure every owner in your business is a U.S. citizen or permanent resident. If not, you'll need to restructure before applying.
5. Talk to a funding advisor. The rules are tighter, but SBA loans are still the best deal in business lending. Low rates, long terms, and government backing. You just need to meet the bar.

Frequently Asked Questions

What changed with SBA loans on June 1, 2025?

The SBA released a new rulebook called SOP 50 10 8. It makes SBA loans harder to get. The biggest changes: collateral is now needed on loans over $50K (was $500K), you need 10% down for startups and acquisitions, the minimum credit score went up, and all owners must be U.S. citizens or permanent residents.

Do I need collateral for an SBA loan now?

Yes, for any loan of $50,000 or more. Before June 2025, collateral was only required on loans of $500,000+. This is a major change that affects most SBA borrowers.

What credit score do I need for an SBA loan in 2025?

The minimum SBSS score went from 155 to 165. For your personal credit, most lenders want 650+, with 690+ being ideal for the best terms.

Can I still use a seller note for my down payment?

Yes, but only up to 50% of the required equity. The note must be on full standby (no payments to the seller) for the entire SBA loan term. At least 5% of total project costs must come from your own cash.

Can I refinance my MCA into an SBA loan?

No. As of June 1, 2025, merchant cash advances and factoring agreements can no longer be refinanced into SBA loans.

Why did the SBA make these changes?

The SBA 7(a) program had its first year of negative cash flow in over a decade in fiscal year 2024. Too many underqualified borrowers defaulted. The stricter rules are meant to keep the program financially healthy.

Are SBA loans still worth it?

Yes. SBA loans still offer the lowest interest rates and longest repayment terms available for small business lending. Up to 25 years, rates from Prime + 2.75%, and up to $5 million. The bar to qualify is just higher now.