The SBA is Making it Easier to Obtain an SBA 504 Loan

SBA is Making it Easier to Obtain an SBA 504 Loan

On April 11th, 2023, the Small Business Administration (SBA) released their final rule, which includes eligibility and procedural changes that make SBA 504 financing even more obtainable. The SBA aims to make the SBA 504 loan available to more small businesses by relaxing eligibility criteria, reducing required documentation and implementing an updated credit policy.

We anticipate the changes to go into effect, May 12, 2023.  Changes are subject to SBA’s release of guidance and procedural notices.*

Summary of new SBA regulations:

  • Simplification of Affiliation rules:
    • Affiliation via Ownership – Affiliation is now generally defined as 50% ownership in another entity with a similar NAICS code prefix, thus greatly reducing affiliation by ownership scenarios.  There are nuances to this so we will share more details as we receive them.
    • Affiliation via Management – SBA is removing this rule including the principle of control of one entity over another.  
    • Affiliation via Identity of interest – SBA is removing this rule with the exception of spouses and children.
    • Affiliation via Franchise and License Agreements – SBA is removing this rule. The SBA Franchise Directory will no longer be published.
  • SBA has streamlined and modernized lending by reducing factors for determining creditworthiness and reasonable assurance of repayment from nine to three requirements. The three lending requirements are as follows:
    • Credit score or history of the applicant, its associates, and guarantors
    • Earnings or cash flow of the applicant
    • Equity or collateral of the applicant, as applicable

*All SBA 504 information above is subject to full pending SBA implementation guidance – required regulations, notices, and revised forms.  The regulations surrounding a CDC’s ability to implement the new regulatory changes are still being finalized. The SBA is expected to provide more information as soon as it is available. Please check back for the most up to date information.