The SBA has released an update to its Standard Operating Procedures (SOP), effective June 1, 2025. These changes impact loan eligibility, use of proceeds, and documentation requirements for 7(a) loans for all applicants issued an SBA loan number on or after that date.
If you’re planning to apply for an SBA loan, it’s essential to understand how these updates could affect your application.
Here’s what’s changing and how it could affect your SBA loan application. SmartBiz is here to help you through the process and ensure you’re set up for success with your SBA loan application.
Key updates for SBA 7(a) small loans
- Loan cap reduced
The maximum loan amount for SBA 7(a) small loans has been reduced from $500,000 to $350,000.
- Higher credit score threshold
To qualify for a 7(a) small loan, borrowers must now meet a higher Small Business Scoring Service (SBSS) score of 165, up from the previous minimum of 155. SmartBiz facilitates the collection of data and the submission process to obtain the SBSS score as part of its streamlined underwriting process. The SBSS score is not simply a standard credit check—it’s a specialized composite score required by the SBA for certain loan types.
- Hazard insurance is now mandatory
Loans over $50,000 must now be accompanied by Business Personal Property Insurance, ensuring added protection for the SBA and the borrower.
Broader changes to all SBA 7(a) Loans
- Refinancing restrictions tightened
In a significant change, merchant cash advances and factoring lines can no longer be refinanced under the SBA 7(a) program. This restriction aims to prevent SBA funds from being used to restructure high-risk, high-cost financing arrangements that fall outside traditional lending standards.
- Franchise verification returns
The SBA is reinstating the SBA Franchise Directory, which had been paused since January 2021. Now, any business operating under a franchise must be listed on the SBA’s approved directory.
- Stricter ownership requirements
Applicants must now provide documentation verifying that the business is 100% owned by U.S. citizens, U.S. nationals, or Lawful Permanent Residents (LPRs). This update formalizes an eligibility criterion that may have been more loosely enforced under previous SOPs.
What these changes may mean for your business
These changes mark a return to more stringent underwriting and eligibility practices, many of which mirror pre-2021 SOP requirements. The SBA has removed the more flexible guidance in favor of clear, formal standards that aim to reduce risk and streamline processing across lenders.
If you’re in the early stages of applying for a loan or considering refinancing, these updates may change your eligibility or the loan products available to you. While some of the new requirements may seem burdensome, they also reflect the SBA’s commitment to responsible lending and long-term small business success.
Next steps to consider
For a deeper dive into these SOP changes, review the official SBA Information Notice. SmartBiz is here to help you through the process and help set you up for success with your SBA loan application.
