Business Loan Program Improvements (2024)

SBA Eligibility Determination
7(a) & 504

• Lenders were responsible for determining program eligibility under delegated authority; SBA could repair or deny a guaranty purchase request for eligibility
• SBA was responsible for determining eligibility for non-delegated loans

• SBA is responsible for determining eligibility for all loans based on ETRAN data submissions, and SBA will not repair or deny a guaranty purchase request for eligibility if SBA determined the borrower eligible

• When applying SBA size standards, affiliation included both ownership and the subjective concept of “control”

• When applying SBA sizes, which includes regulations related to affiliation, affiliation focuses only on ownership considerations. SBA will check and confirm compliance with SBA affiliation regulations as a component of the overall eligibility determination

• Lender complied with FinCen BSA/KYC requirements

• Lender must continue to comply with FinCen BSA/KYC requirements
• SBA conducts fraud reviews on every loan application

• Lenders/SBA used the Authorization Wizard to re-enter information to generate the Loan Authorization

• Lenders can automatically generate a “Terms and Conditions (Ts&Cs)” sheet with one click using information already entered in ETRAN. The Ts&Cs sheet can be downloaded, printed, emailed, etc.

• Applicant had to answer three questions regarding prior criminal background of its owners
• Owners could be required to complete a lengthy character determination process, which included fingerprints and an FBI background check

• Applicant has to answer one question regarding prior criminal background of its owners with no requirement for a criminal background check or fingerprints

• An applicant’s personal resources could impact the credit not available elsewhere determination
• Many lenders included a narrative/discussion in their credit memo describing why credit was not available elsewhere

• An applicant’s personal resources do not impact the “credit not available elsewhere” determination
• Lenders can document why credit is not available elsewhere by selecting one of the following common reasons:
  1. Inadequate collateral
  2. Inability to meet lender’s conventional credit score policy
  3. StartUp business
  4. Business needs longer maturity
  5. Loan exceeds lenders policy limit it can lend to one customer (cannot be sole selection)
  6. Other

• SBA will provide FICO Small Business Scoring Service scores (SBSS scores) for 7(a) loans under $350,000, except SBA Express, CAPLines, and export loans

• SBA will provide SBSS scores for all 7(a) loans under $500,000, except SBA Express, CAPLines, and export loans

• For loans that did not receive an acceptable SBSS score and were over $350,000, SBA required lenders to use a standard, 9-point underwriting criteria

• Beginning May 2023, simplified underwriting can be used for loans $500,000 or less, including:
  1. Through an acceptable SBSS score, currently 155 and above
  2. Through cashflow analysis
  3. Through the lender’s same policies and processes they use for similar-sized non-SBA guaranteed loans, including use of credit scoring models
  4. Through the standard, 9-point underwriting criteria used for 7(a) Standard loans over $500,000

• Not permitted

• Beginning May 2023, permitted

• For most loans, lenders had to obtain copies of the applicant's tax return transcripts and reconcile with the financial information provided in the application

• For loans $500,000 and less, lenders have additional options – they can follow their business financial information verification practices and at least collect tax returns to verify tax filing, a standard used in similarly situated private sector loans

• SBA capped fees that lenders could charge applicants
• Lenders were prohibited from charging flat fees and completed Form 159 for all loans
• Lenders were not clear on incorporating technology service fees

• SBA continues to cap fees that lenders can charge applicants
• Lenders may charge a flat servicing and packaging fee of $2,500 without completing Form 159
• Lenders may charge certain technology service fees

• Not required for loans of $25,000 and less

• Not required for loans of $50,000 and less (personal guarantees remain)

• Depending on the 7(a) loan delivery method and loan size, lenders used different purchase packages

• Lenders use a Universal Purchase Package (UPP) for all 7(a) loans, regardless of delivery type or loan size

• A 10% equity injection was required for start-up businesses and complete changes of ownership, except for Express
• For changes of ownership between existing owners, the applicant’s debt to worth ratio must not exceed 9:1

• Equity injection is not required, lenders can follow their policies for similarly situated private sector loans
• No debt to worth ratio requirement

• A 10% equity injection was required for start-up businesses and complete changes of ownership
• For changes of ownership between existing owners, the applicant’s debt to worth ratio must not exceed 9:1

• A 10% equity injection is required for complete changes of ownership
• For changes of ownership between existing owners and partial changes of ownership, the applicant’s debt to worth ratio must not exceed 9:1
• Except for changes in ownership, an equity injection is not required, lenders can follow their policies for similarly situated private sector loans

• SBA had specific requirements for verification of equity injection

• Requirement for verification of equity injection is flexible, lenders can follow their policies for similarly situated private sector loans

• SBA had different requirements for each 7(a) delivery method

• SBA synched the debt refinance requirements across most of the 7(a) delivery methods and streamlined the requirements

• Required to be processed non-delegated through SBA’s loan processing center

• Lenders permitted to process these loans using delegated authority, so long as debt is current for the past 12 months