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

SBA is Making it Easier to Obtain an SBA 504 Loan

The Small Business Administration (SBA) recently released a new SOP, 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.

Summary of new SBA regulations*:

Effective May 12th, 2023

  • Simplification of Affiliation rules:
    • Affiliation via Ownership – Affiliation is now generally defined as owners and/or businesses with more than 50% ownership in another entity within a similar line of business, thus greatly reducing affiliation by ownership scenarios.  There are nuances to this so we will share more details as we receive them or reach out to your TMC Business Development Office to discuss. Impact: less financial information will be required, more SBA dollars are available, and in some situations, fewer personal guarantees will be required.
    • Affiliation via Management – SBA is removing this rule including the principle of control of one entity over another. Impact: SBA no longer needs to review Management Agreements. 
    • Affiliation via Identity of interest – SBA is removing this rule with the exception of spouses and children. Impact: previously siblings and other extended family members could be tied in and that is no longer the case.
    • Affiliation via Franchise and License Agreements – SBA is removing this rule. The SBA Franchise Directory will no longer be published. Impact: Franchise Agreements do not need SBA review.
  • 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
  • Effective August 1st, 2023
    • Character Clearances – SBA will run a background check to determine if a borrower is currently on probation, parole, incarcerated or under indictment. Past convictions will not impact loan approvals. Fingerprint cards and incident reports will no longer be required for past convictions.
    • Personal Liquidity – Historically, SBA may decline projects when there is an abundance of personal liquidity. With the new changes, there will be more leniency in this situation.

*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.