SBA Changes Collateral Requirements, Adopts FICO Scores for Disaster Loan Program Eligibility
July 24, 2024
Delaney Sexton
Contributing Editor
SBA Changes Collateral Requirements, Adopts FICO Scores for Disaster Loan Program Eligibility
Telegraphing possible changes to the SBA 7(a) loan program, SBA has proposed a rule that increases the unsecured loan amount for their disaster loans. Now, the unsecured loan threshold is $50,000 for EIDL loans for all disasters and for Major Disaster declarations. The collateral threshold has been at $25,000 for major disasters and EIDL for a decade. For SBA Agency disasters, the collateral threshold has been at $14,000 since 2008. They increased the threshold because it was unnecessarily preventing borrowers from receiving adequate funds for recovery.
There were changes to the credit elsewhere requirement. Previously, SBA had to determine whether disaster survivors had credit elsewhere by analyzing cash flow and disposable assets. Now, SBA is allowing the use of credit score modeling to determine credit elsewhere. SBA will be able to expedite loan application processing through this change. However, SBA can still review cash flow as part of the credit elsewhere determination in certain circumstances.
The effective date for these changes is September 9, 2024, unless SBA receives a significant adverse comment to the direct final rule. They will be accepting comments until August 23, 2024. You may submit comments on the Federal eRulemaking Portal using (RIN) 3245-Aio8: https://www.regulations.gov.
SBA is making these changes to address limits due to inflation, increase efficiency with the delivery of the program, increase the percentage of borrowers using the SBA mitigation program, and reduce the burden of collateral and improve access to credit in underserved communities.