SBA Hot Topic Tuesday – SBA Streamlines Lending Criteria in Rule Proposal

November 1, 2022

Delaney Sexton
Contributing Editor

SBA Hot Topic Tuesday – SBA Streamlines Lending Criteria in Rule Proposal

“The U.S. Small Business Administration (SBA or Agency) is proposing to amend various regulations governing SBA’s 7(a) Loan Program and 504 Loan Program, including use of proceeds for partial changes of ownership, lending criteria, loan conditions, reconsiderations, and affiliation standards, to expand access to capital to small businesses and drive economic recovery,” reads a summary of the SBA’s proposed rule.

The SBA lending criteria for the 7(a) and 504 programs currently considers nine factors:

a. Character, reputation, and credit history of the applicant
b. Experience and depth of management
c. Strength of the business
d. Past earnings, projected cash flow, and future prospects
e. Ability to repay the loan with earnings from the business
f. Sufficient invested equity to operate on a sound financial basis
g. Potential for long-term success
h. Nature and value of collateral
i. Effect any affiliates could have on the ultimate repayment ability of the applicant

The changes proposed include:

• Revision to allow use of 7(a) loan proceeds to fund partial changes of ownership
• A new requirement that lenders and CDCs must use appropriate and prudent commercial credit analysis processes and procedures
• Permit lenders, CDCs, and SBA to use a business credit scoring model to increase the number of approved small loans while decreasing the time required to process a loan.
• Removing the requirement to consider character and reputation
• 7(a) and 504 loans $150,000 and under will have a modified requirement for hazard insurance.
• For reconsideration after denial, the Director of the Office of Financial Assistance or the Director’s designee(s) can make a final decision on reconsideration

The proposed rule streamlines lending criteria by reducing factors required to be applied in determining creditworthiness and assurance of repayment, allowing for flexibility.

The SBA’s proposed rule currently has a comment period open until December 27, 2022. You can submit a comment here.

SBA Proposed Rule