SBA Loan Changes Coming June 2025: What Small Business Owners and Buyers Need to Know
On April 22, 2025, the Small Business Administration (SBA) announced updates to their Standard Operating Procedure (SOP) for Lender and Development Company Loan Programs, officially known as SOP 50.10.8. Effective June 2025, these changes mark a return to pre-2021 lending policies, introduced during the first Trump administration. The updates could have significant effects on small business financing, particularly for buyers, sellers, and entrepreneurs planning their next move.
Here's a breakdown of the most important updates and what they mean for you.
SBA 7(a) and 504 Loan Programs
The SBA's 7(a) and 504 loan programs are fundamental tools for financing small businesses. Each program supports different business needs:
- SBA 7(a) Loans are well-suited for a range of purposes, including buying an existing business or franchise, covering working capital, financing inventory or equipment, and even paying for closing costs. Their flexibility makes them a top choice for many small business owners and buyers.
- SBA 504 Loans are ideal for larger fixed asset purchases, such as commercial real estate or machinery that fosters business growth. These 504 loans are particularly valuable for buyers requiring long-term financing.
Both programs are vital financing resources, but the upcoming changes to these loan programs require a thoughtful and informed approach to financing.
SBA Loan Requirements Changing in June 2025
Effective June 2025, the SBA is reinstating many requirements that were in place prior to January 2021, effectively rolling back updates to the programs made during the Biden administration. Among the most notable changes are the reinstatement of the Franchise Directory, a mandatory 10% equity injection for loans, personal guarantees for business sellers retaining partial ownership, and stricter limits on seller financing.
Amid an uncertain economic landscape during the early months of the second Trump administration, these changes to seller financing and deal structures may have widespread implications for business transactions across industries.
Reintroduction of the Franchise Directory
The Franchise Directory will return, providing a list of SBA-approved franchises. For aspiring franchisees, this simplifies the loan process and could encourage more entrepreneurs to explore franchise opportunities. Franchises listed on the directory as of May 11, 2023, will have until July 31, 2025, to execute the SBA Franchisor/Distributor Certification to maintain their listing.
Mandatory 10% Equity Injection
Starting June 1, 2025, SBA loans will require a minimum 10% equity injection, with no exceptions. While this has been standard for many deals, some lenders previously allowed no down payment for business acquisitions. This update ensures borrowers have a personal financial stake in their ventures from the start.
Limits on Seller Financing for Equity
The SBA is tightening rules on seller financing. Seller contributions now can only account for up to 50% of the required equity injection, and the financed portion must remain on standby for the full term of the loan. While these measures are designed to increase deal stability, they reduce flexibility for buyers relying heavily on seller financing to close transactions.
Personal Guarantees for Sellers Retaining Partial Ownership
For sellers who retain partial ownership in a business, the SBA will now require a personal guarantee for the full loan amount. This applies regardless of how small the retained stake is. For sellers interested in remaining involved post-sale, this policy adds a layer of financial risk.
Life Insurance Requirements Reinstated
Life insurance policies for borrowers or guarantors will once again be required. These policies protect lenders in the event of an individual's unexpected passing. However, securing SBA-compliant life insurance can take time, so it's important to start this process early when pursuing financing.
Cannabis-Related Businesses' Loan Eligibility
Businesses involved in cannabis-related activities remain ineligible for SBA loans, reflecting federal laws. This applies to companies that grow, sell, produce, or distribute marijuana products, even in states where cannabis operations are legal.
Indirect cannabis-related businesses, such as those selling equipment or services to marijuana companies, may also be excluded. On the other hand, hemp businesses and CBD-related companies may qualify for SBA loans if they meet federal and state regulatory requirements. Borrowers in these industries should consult with an expert to ensure they comply.
Practical Steps for Buyers and Sellers
Planning and preparation are essential to navigating these changes. Below are some key strategies to help you stay ahead.
For Buyers:
- Prequalify with a Lender: Start early to understand your financing eligibility and ensure you're working with an SBA-preferred lender.
- Plan for Insurance Requirements: Begin securing life and hazard insurance as soon as possible to prevent delays during the loan process.
- Review Your Equity Strategy: Ensure you have enough cash for the 10% equity injection and avoid excessive reliance on seller financing.
For Sellers:
- Update Tax Filings and Financial Records: Ensure your financials are clean, accurate, and current to avoid underwriting delays.
- Weigh Your Sale Structure: If considering partial ownership retention, assess the implications of personal guarantee requirements.
- Understand New Seller Financing Rules: Be prepared for standby terms and consult with advisors to establish compliant deal structures.
Why These Updates Matter
Whether you're preparing to buy your first business, expand your portfolio, or sell a company, understanding these updates is only the first step. Partnering with SBA-savvy brokers, lenders, and advisors can guide you through the intricacies of financing under the revised guidelines.
The BizBuySell Business Broker Directory is a great place to find expert brokers who can assist with your specific transaction needs. Stay tuned for more updates as new guidance is released, and ensure your next business move is a smart and informed one.