Navigating the SBA's New SOP 50 10 8

Effective June 1, 2025, the Small Business Administration's Standard Operating Procedure (SOP) 50 10 8 marks a significant shift in SBA lending policies. This comprehensive overhaul represents the SBA's commitment to providing clear, structured guidance for lenders and borrowers alike.

The new SOP allows the SBA to move away from the ambiguous "do what you do" approach and replace it with consistent standards designed to make the lending process more predictable and efficient for everyone involved.

At Live Oak Bank, we've been preparing for these changes to ensure a seamless transition for our customers. This blog will walk you through the key changes, what they mean for your business, and how to successfully navigate the new lending landscape.

Key changes at a glance

The SOP 50 10 8 introduces several significant changes that will impact how businesses apply for and receive SBA loans:

• Injections for Startups & Ownership Changes: Be prepared for a 10% minimum equity injection requirement for both startup ventures and changes in business ownership.
• Seller Debt on Standby (Partial Amount): For meeting this 10% injection, the SBA may allow seller debt to be on full standby for the entire loan term, potentially covering up to half of the required injection amount.
• Reinstatement of the Credit Elsewhere Test: Borrowers will once again need to demonstrate a lack of alternative financing options from conventional lending sources.
• Renewed Documentation Requirements: For smaller loan amounts, expect the return of mandatory documentation, including tax transcripts, hazard insurance, and life insurance.

2. Change of Ownership Provisions:

• Seller Guaranties in Partial Changes of Ownership: In situations where sellers retain an equity stake after a partial change of ownership, sellers will be required to provide a full personal guaranty for a period of 2 years.

3. Franchise Considerations:

• Return of the Franchise Directory: The SBA is reintroducing its Franchise Directory.
• July 31, 2025 Deadline: Franchisors must ensure their paperwork for inclusion in this directory is submitted by July 31, 2025. Until this date, the previous Franchise Directory will remain in effect.

Financial requirements: what you need to know

The 10% Injection Requirement

One of the most significant changes in the new SOP is the reinstatement of the 10% minimum equity injection requirement for startups and changes of ownership:

• For startups: You must contribute at least 10% of total project costs from your own resources
• For business acquisitions: At least 10% of the purchase price must come from buyer equity

This requirement helps ensure that borrowers have meaningful financial investment in their ventures, which has historically led to better loan performance. While 10% is the minimum, be prepared for the possibility that your specific situation might require a larger down payment based on risk factors.

The Credit Elsewhere Test Returns

The Credit Elsewhere requirement has been formally reinstated, requiring borrowers to demonstrate they cannot obtain comparable financing through conventional channels. This means:

• You'll need to document efforts to secure conventional financing
• You must explain why conventional options aren't feasible (insufficient collateral, longer term needs, etc.)
• Lenders must verify and document why the SBA guarantee is necessary

This test helps ensure that SBA programs supplement rather than compete with conventional lending markets, directing federal resources where they're most needed.

Insurance and Documentation Requirements

The new SOP also reinstates specific documentation requirements for smaller sized loans that had been relaxed in previous versions:

• Tax transcript verification: Lenders must verify tax returns through IRS transcripts
• Hazard insurance: Proof of adequate coverage protecting business assets
• Life insurance: May be required for key individuals in the business

These requirements help protect both borrowers and lenders by ensuring transparency and appropriate risk mitigation.

Change of ownership: new rules for business acquisitions

Seller Guarantees in Partial Changes of Ownership

For business acquisitions where the seller retains an ownership interest after the sale, the new SOP introduces a significant requirement:

• Sellers maintaining an ownership stake must provide a full personal guaranty for a period of 2 years
• This guaranty ensures sellers remain invested in the business's success during transition
• The structure of this guarantee will impact how partial changes of ownership are negotiated and documented

Deal Structuring Considerations

When approaching business acquisitions under the new SOP, both buyers and sellers should:

• Address the guaranty requirement early in negotiations
• Have transaction documents reviewed by counsel familiar with SBA requirements
• Develop clear provisions for business governance during the guarantee period
• Ensure all agreements clearly outline roles and responsibilities
  
  

Franchises and the SBA: directory returns

The SBA Franchise Directory: What It Is

The SBA Franchise Directory is a centralized registry of franchise systems that have been reviewed and approved as eligible for SBA financing. Its return brings:

• Streamlined processing for qualifying franchise systems
• Clear eligibility determination for franchisees seeking financing
• Consistent standards across the lending community

Under the new SOP, lenders will once again refer to this directory when processing applications for franchise businesses.

The Critical July 31, 2025 Deadline

Franchise systems need to mark July 31, 2025, as a critical deadline for submitting documentation to be included in the revived Franchise Directory:

• Systems not listed by this date may face delays in loan processing
• Franchisees seeking financing may prioritize systems already in the directory
• The review process takes time, so early submission is advisable
  
  

Requirements for Directory Inclusion

To be included in the directory, franchise systems must submit:

1. Current Franchise Disclosure Document (FDD)
2. Franchise agreement and related documents
3. SBA Addendum to Franchise Agreement (if applicable)
4. Documentation addressing control issues and eligibility concerns

The SBA will review these documents to ensure the franchise relationship meets eligibility requirements, particularly regarding issues of control and affiliation.

Timeline Expectations Under the New SOP

With the return to structured guidelines, businesses can expect the following timeline for SBA loans:

• Total process time: 60-90 days from complete application to funding
• Underwriting: 30-45 days (potentially faster with well-prepared documentation)
• SBA review: 5-10 business days for Preferred Lenders like Live Oak Bank
• Closing process: 2-4 weeks after SBA approval

While these timelines represent industry averages, at Live Oak Bank, our digital-first approach and specialized industry knowledge often allows us to move more efficiently through the process.

Preparing for success under SOP 50 10 8

Documentation Preparation Checklist

To position yourself for success under the new SOP, begin gathering these essential documents:

•  Three years of business and personal tax returns
•  Current financial statements (balance sheet, income statement)
•  Personal financial statement (SBA Form 413)
•  Business plan with detailed projections
•  Documentation of industry experience
•  Evidence of down payment funds
•  Hazard insurance quotes
•  Life insurance information (if applicable)
•  Business formation documents
•  Real estate information (if applicable)

Working with the Right Lender

The return to structured guidelines makes your choice of lender more important than ever. Look for:

• SBA Preferred Lender status: Ensures streamlined processing
• Industry expertise: Understanding of your specific business sector
• Experience with SBA changes: Track record of adapting to new SOP requirements
• Digital capabilities: Efficient document collection and processing
• Clear communication: Regular updates on application status

The Live Oak Bank Advantage

At Live Oak Bank, we're uniquely positioned to help you navigate the new SOP requirements:

1. Industry-Specific Expertise: Our lending teams specialize in specific industries, understanding both your business needs and how the new SBA requirements apply to you.
2. Digital Approach: Our technology platform simplifies document collection and accelerates processing times.
3. SBA Leadership: As a top SBA lender, we've been preparing for these changes and have already aligned our processes to ensure minimal disruption.
4. Relationship Focus: We are with you through the life of your loan, guiding you along the way.
   
   

Embracing the New SBA Landscape

The SBA's return to structured guidance through SOP 50 10 8 represents both challenges and opportunities for small businesses. While the requirements may seem more stringent than before, the predictability they bring to the process can speed up loan approvals and funding.

By understanding these changes and partnering with an experienced SBA lender like Live Oak Bank, you'll be well-positioned to navigate this new landscape successfully. The key is preparation—starting early, gathering comprehensive documentation, and working with experts who understand both your industry and the evolving SBA requirements.

This article provides general information about SBA SOP 50 10 8 based on available information. Requirements may vary based on specific circumstances and further SBA guidance. Contact Live Oak Bank for information specific to your situation.