The US Small Business Administration (SBA) assists eligible borrowers in accessing SBA-backed financing. The loan guarantees competitive terms, lower down payments, and continued customer support, depending on the lender. It is, therefore, the best option for starting a business if you don’t have capital or if you require cash to expand an ongoing business.  

In April 2023, the US SBA released a guideline update for the loan program. The seventh version of the Standard Operating Procedure (SOP) will streamline the borrowing process and cushion lenders against unforeseen risks. 

Discover the latest updates to the standard operating procedure, effective August 1, 2023. 

Partial Business Acquisition 

SOP updates contain flexible changes to partial business ownership. Effective August 1, 2023, you will use SBA loans to buy a share of the owner’s interest or finance a partial business acquisition. The clause on partial acquisition also allows you to retain ownership status as a director or major employee of the business despite selling part of the interest. 

Convenient Equity Injection 

Equity injection refers to adding cash or assets to an existing business. The SOP 50 10 updates highlight new rules on equity injection for startups and acquisitions.  

Start-ups, for instance, don’t have a formal equity requirement under the latest operating procedures. However, if applicable, your lender may determine a specific equity injection for your business. 

Acquisitions are equally subject to new equity regulations. If you’re entering a business acquisition in which you’re the new owner, you will inject ownership equity of at least 10% of the total business cost. You can also incorporate seller debt to boost your equity if the said seller doesn’t pay for the interest or principal during the acquisition. 

Employee Stock Ownership Plans (ESOPs) will also benefit from the latest updates on the operating procedures. For instance, if an employee requires an SBA loan to purchase a controlling interest in your business, they will be exempt from equity injection provided they buy at least 51% of the total stake. 

Simplified Affiliation Standards 

SBA loans had complex affiliation standards that determined the business size based on who controlled the entity. Consequently, the principle of control implied you became an affiliate if you had absolute control over the business. 

The new update, however, offers relief as it simplifies the process of affiliate determination. First, it eliminates the affiliation element in business control, allowing your lender to evaluate ownership percentage. Moreover, a 50%+ threshold will now determine your entity ownership and control level. 

Streamlined Creditworthiness 

SBA loans will have streamlined criteria for determining creditworthiness following the updates. If you’re applying for a loan under $500,000, the lender will require little documentation for due diligence and to determine your creditworthiness. The updates further grant the lender the power to approve your loan request based on the following criteria; 

  • Business earnings or cash flow.
  • Credit score or lending history.
  • Equity or collateral

No Personal Liquidity Test 

Lenders previously conducted a liquidity test to ascertain that the business funds didn’t originate from your personal resources. The review involved a stringent assessment of all usable liquid assets before getting the loan. However, the recent updates will make obtaining SBA loans easier since the new rules eliminate the need to evaluate your resources during the review. 

Repealed Insurance Requirement 

Most loans require you to purchase an insurance cover to cushion the lender against unforeseen risks. However, under the new SBA guidelines, your bank’s internal policies will determine if you’ll attach a life insurance policy for collateral. The new regulation equally eliminates hazard insurance for a loan under $500,000. 

Do You Need Assistance Getting SBA Loans? 

The SOP 50 10 update is a game-changer in business loan acquisition. You can now enjoy more financial room and access an SBA loan to kickstart your entrepreneurial journey. Private Practice Transitions provides specialized business consulting and brokerage services.  Contact us for referrals for assistance getting an SBA loan or up-to-date information on SBA guidelines.