Recently, the U.S. Small Business Administration (SBA) made changes in their rules that make it easier and faster to get a business loan when you need less than $500,000. In 2023, the Small Business Administration released a new Standard Operating Procedure, which is the set of rules banks use to originate and underwrite loans. The update had significant changes to the flagship 7(a) and 504 lending programs. The SBA has reduced certain barriers that could’ve held up loans in the past, like collateral requirements and equity injection. In simple terms, more small business owners will be able to qualify for SBA loans – beneficial for small business owners who are in growth-mode.
Let’s get into these game-changing updates from the SBA.
- Streamlined loan process and documentation. For loans under $500,000, the SBA has reduced the paperwork load to prove your creditworthiness. This saves both the borrower and the bank time by cutting out several steps in the lending process, meaning you get your money faster. This streamlined process will allow you to focus on what matters most: growing your business.
- For loans under $500k, SBA rules go from prescriptive to general bank policy. In other words, the SBA is empowering the lenders to apply their rules of conventional lending to SBA lending. This means removing collateral requirements – so you don’t have to secure your loan with your personal home. This change reduces the risk and burden for small business owners, making SBA loans more attractive and accessible.
- Relaxed equity injection requirements. If you are buying a second location, there is no equity injection required. If you’re buying a business, you still need to put down 10% of equity, but the SBA has relaxed its rules around what qualifies as equity. Sure, it could be 10% cash but it could also be 10% seller financing. This flexibility makes it easier for entrepreneurs to get funding and expand their business without needing a large upfront cash investment.
- Refinancing debt is now simpler. The SBA has updated its rules around refinancing, making it easier and faster to refinance business loan debt. This can lead to lower monthly payments and improved cash flow for your business. This also allows businesses to consolidate multiple debts into a single and much more manageable loan.
Explore our complete guide to the new SBA changes here and learn more about small business loans from Live Oak here.
