Navigating the world of small business loans can be complex, and changes in policies or procedures by the U.S. Small Business Administration (SBA) add a new layer of challenge. However, staying informed about SBA updates isn’t optional - it’s essential for business owners who want to capitalize on growth opportunities or secure working capital in today’s environment.

In early 2025, the SBA released new guidance that goes into effect on June 1, 2025. These changes impact eligibility criteria, loan classifications, and documentation expectations across SBA 7(a) and 504 programs. If your business is considering a government-backed loan - or already relying on one - this guide breaks down what’s new, what it means, and how to prepare.

Why this matters now

The SBA SOP 50 10 8 (Lender and Development Company Loan Programs) is 448 pages long - not exactly light reading for a busy business owner. But within it are critical shifts that could impact your funding journey.

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SBA loans offer some of the most favorable terms on the market, supporting everything from working capital to equipment, disaster recovery, and growth. Missing these changes could mean: 

  • Being disqualified from overlooked criteria
  • Delays in the loan process due to missing documentation
  • Leaving money on the table while competitors secure better funding

Key 2025 SBA Updates Every Business Should Know

The latest SBA Standard Operating Procedure (SOP 50 10 8), replaces SOP 50 10 7.1 and brings substantial changes across the board. Here’s what small business owners need to know:

Citizenship requirements just got stricter

To qualify, 100% of owners, guarantors, and key employees must now be U.S. citizens, nationals, or lawful permanent residents (green card holders). This replaces the previous 51% threshold and disqualifies any company with foreign stakeholders, even indirectly.

With the new rule, all direct and/or indirect owners or SBA guarantors must be U.S. citizens, U.S. nationals, or lawful permanent residents. SBA lenders must certify that no owners or guarantors are ineligible persons in E-Tran.

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The new rule also defines an ineligible person:

  • Foreign nationals
  • Those granted asylum
  • Refugees
  • Visa holders
  • Nonimmigrant aliens
  • Deferred Action for Childhood Arrivals (DACA) recipients
  • Undocumented aliens in the U.S. illegally

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Finally, the SBA has introduced a six-month lookback requirement. Applicant businesses are ineligible if any associate of the business was an ineligible person in the six months before the SBA loan number was issued unless they have completely divested their ownership interest and severed all relationship with the applicant and company for the life of the loan.

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More industries are now ineligible

SOP 50 10 8 introduces a dedicated section for types of ineligible businesses in the update, with criteria for determining eligibility by business type. Businesses involved in marijuana, hemp, and cannabidiol (CBD) operations are now officially excluded again, reinstating pre-2023 policies. 

Higher SBSS score minimum for 7(a) small loans

Previously, the minimum acceptable SBSS score to be eligible for a 7(a) small loan was 155. The SBA has updated the minimum to a 165 score as of June 1, 2025.

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There’s another change worth noting. Regardless of the SBSS score obtained, a business is ineligible if it has an existing 7(a) or 504 loan that is not current (required payment not made in more than 29 days).

Stricter “Credit Elsewhere” documentation

Demonstrating that credit is not available elsewhere on reasonable terms from non-federal, non-state, or non-local sources has been a longtime requirement for eligibility. This hasn’t changed; however, where lenders had to give a broad certification and substantiation that credit wasn’t available elsewhere, they now have to give specific reasons why the applicant doesn’t meet conventional loan policy, with supporting documentation.

Lenders also can’t certify based on the applicant's credit score alone, which means a more thorough analysis of why a small business won’t meet standard loan policy requirements beyond a poor credit score. 

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As part of this, an applicant's personal liquidity, not just business liquidity will be assessed, and if an applicant has significant personal cash or assets they may be disqualified, even if the business would otherwise qualify on paper.

Lenders are now responsible for verification

While not a direct requirement, it’s worth noting that lenders are now accountable for verifying applicant eligibility. Before the rule change, the SBA took responsibility for verifying applicant eligibility requirements. Now, specific processes and frameworks have been developed for lenders to take on the burden of reviewing and documenting eligibility for an SBA loan directly, except for certain determinations that will be handled by the SBA.

Changes to SBA 7(a) loan categories

Another notable rule update is to 7(a) loan categories themselves, decreasing the upper limit for 7(a) small loans, and the lower limit for 7(a) standard loans.

Former SBA Rule (50 10 7.1) New SBA Rule (50 10 8)
Standard 7(a) loan - loans greater than $500,000 Standard 7(a) loan - loans greater than $350,000
Small 7(a) loan - term loans $500,000 or less Small 7(a) loan - term loans $350,000 or less

SBA Franchise Directory reinstated

SOP 50 10 8 has reinstated the SBA Franchise Directory, creating a catalog of preapproved businesses for easier decision-making by lenders. As a positive, this helps franchise owners benefit from a streamlined certification process. However, if a franchise is not listed in the directory, or hasn’t submitted the required documentation to verify eligibility and receive new certification by July 31, 2025, they will be removed. 

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If a franchise is not in the directory, applicants will need to apply to get added to it before the SBA loan file can move forward.

Revenue-based financing and factoring debt can’t be refinanced

Previously, merchant cash advances (revenue-based financing) and factoring weren’t explicitly listed as being ineligible for refinancing. However, the SBA now defines merchant cash advances as “a purchase of future receivables”, not a traditional loan, so as of the effective date, these loans can’t be refinanced with SBA funds.

How SBA Rule Changes Affect Small Business Owners

The 2025 changes bring both new challenges and new responsibilities. For many small business owners, this means it’s time to:

Reassess your ownership structure

The SBA’s eligible person requirements are stricter than ever, and many small businesses that were eligible prior no longer are. You’ll need to carefully assess your current ownership structure and determine if your business meets ownership eligibility requirements.

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If it doesn’t, you can consider the path of changing your ownership structure, or explore your funding options through alternate sources beyond the SBA.

Strengthen your documentation

There's an increased need for strong documentation in multiple areas of the application process, from person eligibility to demonstrating why conventional credit isn’t available. Review your business's current documentation practices and make improvements in advance to reduce stress and errors in the updated SBA application process.

Confirm industry eligibility 

Not only do the 2025 SBA rule changes bar certain businesses from eligibility, but it also provides expanded context and examples of types of businesses that are ineligible or exceptions to each rule. Familiarize yourself with the SBA SOP 50 10 8 Section A, Chapter 1 to determine whether your business is eligible based on industry.

Know Your SBSS score

As the SBSS minimum score has increased, many businesses that were previously eligible for smaller SBA 7(a) loans may find themselves battling stricter credit requirements. Take steps to improve your score proactively to avoid being shut out of SBA eligibility.

Where Lendio can help

At Lendio, we’ve helped small businesses secure more than $535 million in SBA funding. We work with a trusted network of SBA lenders to help you:

  • Understand your eligibility
  • Compare loan options across lenders
  • Navigate updated documentation requirements
  • Explore alternatives if you’re no longer SBA-eligible

We know these rule changes are complex—but you don’t have to face them alone.

Final word: Stay ready, stay funded

The SBA’s 2025 updates reflect a shift in how government-backed capital is distributed—and who qualifies. While some of the changes may feel like roadblocks, they can also be navigated with the right information and support.

Whether you’re applying for your first SBA loan or reevaluating your funding strategy, now is the time to prepare. Review your structure, improve your documentation, and talk to a trusted partner.

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