6 Ways an SBA Loan Just Got Harder to Get

Starting this financial year, small business owners looking to fund their ventures through an SBA loan might face new challenges. An overhaul of SBA lending standards is about to make borrowing more expensive and significantly harder to qualify for. 

Under the Biden Administration, restrictions and requirements surrounding SBA loans were relaxed, however the 7(a) program lost money for the first time in over a decade. The Trump Administration is reversing many of these changes and adding more stringent regulations in what they say is a move to “prioritize eliminating fraud and waste,” SBA Administrator Kelly Loeffler announced. However, for business owners, these new rules may make securing financing more difficult.

Credit Score Requirements Tightened: The “SBSS” Score Went Up

Previously, you could qualify for an SBA loan with an SBSS (Small Business Scoring Service) credit score of 155. Now, the minimum has been raised to 165. This change was designed to reduce defaults, especially among applicants who previously were approved under more lenient COVID-era scoring thresholds.

“Do What You Do” Underwriting Eliminated

Under the Biden Administration, lenders could set their own standards to assess creditworthiness. This was meant to reduce administrative hurdles and streamline loan applications. Through this, lenders could use their internal guidelines and case-by-case judgment to offer borrowers flexible selection criteria.

This provision has now been removed and lenders have to use standard SBA criteria, making qualification rules more rigid.

SBA Guarantee Fees Are Back

Small Business Administration loans are funded through lender fees, not taxpayers’ money. The Biden Administration had removed these fees, which are “projected to cost taxpayers billions,” according to the new SBA management under the Trump Administration.

“Reduced fee revenue left the agency in a shortfall and unable to cover the cost of failed loans,” an SBA press release read. It said that from 2022 to 2024, the SBA estimated that over $460 million in upfront lender fees were not collected. As a result, the SBA’s 7(a) loan program saw negative cash flow of about $397 million in FY 2024, which was the first time negative cash flow was noted in over a decade.

As a result, SBA has now reintroduced the guarantee fees. While this will help the program go back to its zero-subsidy status, it will add barriers for businesses on a tight budget.

Hazard Insurance Is Required, Even for Small Loans

Previously, hazard insurance was only required for SBA 7(a) and 504 loans above $500,000, but the threshold amount has been lowered to just $50,000. This applies to assets like real estate used as collateral for the loan.

This change will make borrowing more expensive, adding to the expense of the additional guarantee fees. 

Small Loans Got Smaller ($500K to $350K)

The SBA has changed the definition of a 7(a) small loan of a loan under $500,000 to under $350,000. This will make applications and the qualification process more difficult as small loans under the threshold require less documentation and typically have faster approval.

Now, loans above $350,000 will be treated as standard loans, requiring more stringent underwriting procedures. 

More Verification Checks 

To apply for an SBA loan, the borrower must pass the “no credit elsewhere” test, which means they don’t have access to funds and can’t get approved for a traditional loan.

Earlier, this criterion didn’t include personal finances, but that’s about to change. The SBA will ask lenders to consider the borrower’s income and assets as part of available credit.

For example, if you have a sizeable savings account and/or an income source that could easily fund your business, you may be disqualified from the SBA loan.

The Bottom Line

While the new SBA loan changes are meant to reduce program risk, they’re likely to make it harder for small business owners to access capital. Borrowers who previously could get a loan with less-than-perfect credit, low liquidity, or untraditional business models may now be denied a loan.

Moving forward, getting an SBA loan may not be the easiest and cheapest option for business owners looking for financing. It’ll require more money, documentation, and patience. If an SBA loan doesn’t fit your current financial situation, consider exploring alternative funding options.