SBA SOP 50 10 8, B.Ch2.C.2 — Underwriting
Verbatim text of SBA SOP 50 10 8 section B.Ch2.C.2 (Underwriting), effective 2025-06-01. 7 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch2.C.2 — Underwriting — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch2.C.2
2. Underwriting Note: If any requested increase to a 7(a) Small Loan or SBA Express loan results in the loan exceeding $350,000 for 7(a) Small or $500,000 for SBA Express, the Lender must follow the underwriting procedures for Standard 7(a) loans.
SOP 50 10 8 B.Ch2.C.2.a
a. Underwriting 7(a) Small Loans i. All 7(a) Small Loan applications will begin with a screening for a FICO® Small Business Scoring ServiceSM Score (SBSS Score). Regardless of the SBSS score, the Applicant business is ineligible if the Applicant business has an existing 7(a) or 504 loan that is not current at the time of issuance of the new 7(a) SBA loan number. “Current” means that a required payment has not remained unpaid for more than 29 days. A loan that has matured and not been paid within 29 days of the maturity date is not current and is not eligible for refinancing. a) The SBSS Score is calculated based on a combination of consumer credit bureau data, business bureau data, Borrower financials, and application data (The SBSS Score is not to be confused with the Redwood scoring model used by SBA’s Office of Credit Risk Management). The minimum credit score is based on the lower end of the risk profile of the current SBA portfolio. As of the effective date of this SOP, the minimum acceptable SBSS score is 165, but that score may be adjusted up or down from time to time. SBA will post on its website the minimum acceptable SBSS credit score for 7(a) Small Loan applications. b) To screen the application for a credit score: The credit scoring system is intended as a screening tool to determine whether a loan is eligible for an SBA guaranty under expedited small loan processing. Because of the costs associated with use of this system, Lenders should not score the same loan multiple times or use the scoring system for loans that will be processed conventionally without a 7(a) guaranty. The Lender will enter a minimal set of fields into E-Tran Loan Origination. At this point, the Lender will not be required to complete the entire set of E-Tran screens, but the Lender may choose to submit the entire set of E-Tran loan origination data if it is easier to keep the data set intact while processing via a third-party software product. c) An acceptable SBSS credit score satisfies the requirement to consider the following: i) The credit history of the Applicant (and the Operating Company if applicable), its Associates, and guarantors, including historical performance as well as the potential for long term success; ii) The strength of the business; iii) Past earnings, projected cash flow, and future prospects; and iv) Subject to the additional analysis required below, the Applicant’s ability to repay the loan with earnings from the business. d) If the Applicant does not receive an acceptable SBSS credit score, the loan must be processed following the procedures for Standard 7(a) Loans. Alternatively, Lenders with SBA Express authority may submit the application via that processing method. e) The Lender’s credit memorandum must demonstrate reasonable assurance of repayment and must include the following: i) A brief description and history of the business; ii) For loans greater than $50,000, when 50 percent or more of the loan proceeds will be used for working capital, Lender must explain in its credit memorandum why this level of working capital is necessary and appropriate for the subject business; iii) A brief description of the management team of the company. Consider the length of time in business under current management and, if applicable, the depth of management experience in this industry or a related industry. If the loan will be for a change of ownership, Lender must address the experience of the new management and potential impact on the business going forward; iv) Owner/Guarantor analysis, including obtaining personal financial statements, consistent with Lender’s policies for their similarly-sized non SBA-guaranteed commercial loans; v) The reason(s) why credit is not available elsewhere on reasonable commercial terms from non-Federal, non-State, non-local government sources; vi) A description of proposed collateral and estimated value, if secured. vii) Insurance – Lender must address whether life insurance or other insurances will be required. Lender may follow the same written policies and procedures it uses for its similarly-sized non-SBA guaranteed commercial loans. viii) Lender must address other specifics relating to the loan as applicable, including: (a) The terms of any seller financing and standby agreements; (b) Discussion of any liens, judgments, or pending litigation including divorce proceedings; (c) If the application involves a franchise (as defined by FTC), the Lender must review any credit information provided, such as the number of failed franchisees and cash flow projections provided by the franchisor). Lender must review any management agreement (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory) to determine if it results in an ineligible passive company; (d) Any debt refinancing, including justification and original purpose (copies of all notes to be refinanced must be submitted with any loan submitted to the LGPC). (e) The effect any affiliates may have on the ultimate repayment ability of the Applicant. ii. 7(a) Small Equity Requirements. a) The Lender must include in its credit analysis a detailed discussion of the required equity and its adequacy. See Ch. 5, Para. D.3.f. of this section for requirements concerning documenting and verifying equity injection. b) Minimum equity injection requirements for certain Applicants and loans:
SOP 50 10 8 B.Ch2.C.2.a.i
i) Start-Up Businesses – SBA considers a business to be a “start-up” for the purpose of determining equity injection requirements if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less. SBA considers an equity injection (Applicant contribution) of at least 10 percent of the total project costs (all costs required to become operational, regardless of the source of funds) to be necessary for a Start-Up Business to operate on a sound financial basis. All 7(a) loans made to a Start-Up Business require a 10% equity injection based on the project cost; however, loans approved more than 90 days apart from each other are considered to be separate projects.; ii) Changes of ownership: (a) Loans to ESOPs for the purpose of purchasing a controlling interest (at least 51 percent) in the employer small business are not subject to the SBA requirement for equity injection. (b) Resulting in a new owner (complete change of ownership): At a minimum, SBA considers an equity injection of at least 10 percent of total project costs (all costs required to complete the change of ownership, regardless of the source of funds) to be necessary for such transactions. Seller debt may not be considered as part of the equity injection unless it is on full standby for the life of the SBA loan, and it does not exceed half of the required equity injection; Note: When an existing business starts or acquires a business that is in the same 6 digit NAICS code with identical ownership and in the same geographic area as the acquiring entity and they are Co- Borrowers, SBA considers this to be a business expansion, and SBA will not require a minimum equity injection. “Same geographic area” means the acquiring entity is located within a reasonable distance of the subject business, allowing management to exercise similar daily control over both locations. (c) Change of ownership between existing owners (“partner buyout”): If the 7(a) Small Loan will finance more than 90% of the purchase price of a partner buyout, the following requirements must be met: The remaining owner(s) must certify that they have been actively participating in the business operation and held the same or an increasing ownership interest in the business for at least the past 24 months. Lender must include in the credit memorandum confirmation that the Borrower has made the required certification and retain such certification in the file. The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership. In the event the Lender is unable to document that both (i) and
SOP 50 10 8 B.Ch2.C.2.a.i.ii
(ii) above are satisfied, the remaining owner(s) must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change in ownership or in the amount of at least 10% of the purchase price of the business, as reflected in the purchase and sale agreement, whichever is less. (d) Partial changes of ownership (Changes of ownership other than complete changes of ownership or complete partner buyouts): The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership. In the event the Lender is unable to document that i) above is satisfied, the new and/or existing owners must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change in ownership or in the amount of at least 10% of the purchase price of the business, as reflected in the purchase and sale agreement, whichever is less. c) Source of Equity Injection: The following may be considered equity injection.
SOP 50 10 8 B.Ch2.C.2.a.i
i) Standby Agreements - only debt that is on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA’s purposes. Lender must use SBA Form 155 or its own equivalent Standby Agreement form, and a copy of the note must be attached to the standby agreement. The standby debt may accrue interest and may be added to the standby debt and amortized after the 7(a) loan is paid in full. Standby Creditor must subordinate any lien rights in collateral securing the loan to Lender’s rights in the collateral and take no action against Borrower or any collateral securing the Standby Debt without Lender’s consent. ii) Cash that is not borrowed, whether on the business’s balance sheet or from other sources. iii) Cash that comes from a personal loan where repayment can be demonstrated to come from a source other than the cash flow of the business (the salary paid to the owner by the business does not qualify). iv) Grants that do not have repayment or clawback provisions during the life of the 7(a) loan.
SOP 50 10 8 B.Ch2.C.2.a.v
v) Assets other than cash – An appraisal or other valuation by an independent third party is required if the valuation of the fixed assets is greater than the Net Book Value. A valuation of the fixed assets provided as part of a business valuation will not meet these requirements. vi) Prepaid expenses that the Lender has verified by obtaining paid invoices, canceled checks, or bank statements. Lender must retain copies of the documentation in the loan file.
SOP 50 10 8 B.Ch2.C.2.b
b. Underwriting SBA Express Loans SBA has authorized SBA Express Lenders to make the credit decision without prior SBA review. i. Lenders must use appropriate, prudent, and generally accepted industry credit analysis processes and procedures (which may include credit scoring), and these procedures must be consistent with those used for the Lender’s similarly-sized, non-SBA guaranteed commercial loans. ii. Lenders must not make an SBA Express loan that would be available on reasonable commercial terms from either the Lender itself or another source without an SBA guaranty. The credit analysis must include the factors demonstrating the Applicant does not have credit available elsewhere on reasonable commercial terms from non-Federal, non-State, non-local government sources, in accordance with Section A, Ch. 2, Para. A.; iii. The credit analysis must demonstrate that there is a reasonable assurance of repayment. iv. Lenders may use a business credit scoring model (such a model cannot rely solely on consumer credit scores) to assess character, reputation, and credit history of the applicant and/or repayment ability if they do so for their similarly-sized, non-SBA guaranteed commercial loans. a) The business credit scoring model may only be used in addition to the Lender’s appropriate, prudent, and generally accepted industry credit analysis and procedures. If used, the business credit scoring results must be documented in each loan file and available for SBA review. b) Lenders must validate (and document) with appropriate and accepted statistical methodologies that their business credit scoring model is predictive of loan performance, and they must provide that documentation to SBA upon request. c) Although SBLCs do not make non-SBA guaranteed loans, SBA has determined they may use credit scoring. SBLCs are required to provide credit scoring model validation to SBA on an annual basis. v. For SBA Express loans, the credit decision, including how much to factor in a past bankruptcy or whether to require an equity injection, is left to the business judgment of the Lender. Also, if the Lender requires an equity injection and, as part of its standard processes for similarly-sized, non-SBA guaranteed commercial loans verifies the equity injection, it must do so for its SBA Express loans. While the credit decision is left to the business judgment of the Lender, early loan defaults will be reviewed by SBA pursuant to SOP 50 57. vi. Lenders must also address other specifics, such as: franchise, license, dealer, or similar agreements and management agreements (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory) to determine whether the management agreement makes the business an ineligible passive business.
Operationalizing SBA SOP 50 10 8, B.Ch2.C.2 — Underwriting
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