Effective August 1, 2023

SBA has stated that the goal of new Standard Operating Procedures (SOP) rule changes is to streamline and modernize the existing lending criteria. SBA continues to require the Applicant be creditworthy. Loans must be so sound as to reasonably assure repayment.  

Character Determination:

SBA removed all guidance relating to “character determination” for the Small Business Applicant. The Applicant is not eligible for 504 financing if any Associate is incarcerated, on probation, on parole, or is under indictment for a felony or any crime involving or relating to financial misconduct or a false statement.

Creditworthiness:

Consolidated Factors for Determining Creditworthiness:
SBA has provided guidance that CDCs, such as NWBDA, must use appropriate and prudent generally accepted credit analysis processes and procedures. The creditworthiness view by SBA, traditionally 9 factors, has been consolidated to 3 factors. The 3 factors are:

• Credit score and/or credit history of Applicant, Associates and Guarantors. Credit history is to
  include character and reputation.
• Earning or cash flow of applicant. Includes review of overall financial strength of business, and
  potential for long-term success.
• Where applicable, any equity or collateral of the Applicant. Includes a review of nature and value of collateral, as well ensuring there is sufficient invested equity to operate on a sound financial basis.

Affiliation Rule Changes:

Major Changes to Applicant Affiliation based on ownership.

• Eliminated Affiliation based on Management
• Eliminated Affiliation based on Identity of Interest – close relatives with identical or substantially identical business or economic interests in the same geographic area
• Eliminated Affiliation based on Franchise, license, and other agreements

Supplemental Guarantor Definition:

A person or entity that a Lender requires to provide a guaranty out of an abundance of caution and that is not otherwise required by SBA Loan Program Requirements to provide a guaranty.

Eligible Energy Public Policy:

This rule has been changed by removing the maximum number of projects eligible, instead relying on a limit of $16.5MM in aggregate debenture funds to eligible entities.

Medical Debt Language Added:

In accordance with Executive Order 14070, to ensure better access to credit, SBA will not (and SBA encourages Third Party Lenders and CDCs not to) factor in the existence of medical debt in the lending decision process.

Eligible Debt Refinance Amount:

The Eligible debt refinance amount for a 504 loan increased from 50% of expansion costs to 100% of expansion costs.

Appraisal Rule Changes:

Incorporated prior notice language allowing appraisal to come in at 90% of estimated value – reduced from previous 95%.

Religious Activity:

SBA deleted all references to “Loan Proceeds for Religious Activity”.

New Reliance Letter:

SBA has a released a new Environmental Reliance Letter required for loans with Environmental reports completed on or after 8/1/2023.

Hazard Insurance:

Hazard insurance is now required for all real estate acquired, refinanced, or improved with the proceeds of an SBA loan.

Flood Insurance:

SBA has changed this requirement – Previously flood insurance was required when any assets pledged as collateral are in a flood zone. New guidance requires flood insurance when assets purchased with loan proceeds are located in a flood zone.

For more information or questions about these rule changes, please contact one of our Business Development Officers.