SBA Hot Topic Tuesday – The New Regulatory Changes to Lending Criteria and Loan Conditions

April 11, 2023

Delaney Sexton
Contributing Editor

SBA Hot Topic Tuesday – The New Regulatory Changes to Lending Criteria and Loan Conditions

After closing the comment period, the SBA received 146 comments on the changes within the proposed rule. The SBA addressed the comments on specific regulatory changes throughout the final rule.

Here are the regulatory amendments in the rule:

Lending Criteria
When determining creditworthiness and reasonable assurance of repayment, lenders and CDCs can consider any of the three specific criteria individually or in combination when approving loans:
• The credit score or credit history of the applicant, its associates, and any guarantors
• The earnings or cashflow of the applicant
• When applicable, any equity or collateral of the applicant

Credit Analysis
• There will be a new requirement that lenders must use the same commercial credit analysis processes and procedures as they would for a similarly sized non-SBA guaranteed commercial loan.
• SBA lenders will be required to underwrite SBA loans in the same manner that the lender underwrites similarly sized, non-SBA guaranteed commercial loans.
• Lenders and CDCs that do not make non-SBA guaranteed loans will continue as they currently are.
• The final rule will allow lenders to use a credit scoring model to increase the number of small loans approved and decrease the length of time required to process the loan. Lenders who elect to use the credit scoring model are estimated to save 2 to 4 hours per loan.

Loan Conditions
“As is the requirement for all loans, SBA Lenders will continue to be required to examine Franchised businesses for affiliation based on ownership,” reads the rule. “However, neither the SBA Lender nor SBA will review the applicant Franchised business for affiliation with other entities beyond ownership; the applicant business will not be considered affiliated with the Franchisor or other Franchised businesses except by ownership.”
• Borrowers will be allowed to use 7(a) loan proceeds to fund partial or full changes of ownership.
• SBA is eliminating the requirement for hazard insurance on loans $500,000 or less. This is estimated to save lenders 0.25 to 6 hours per loan over the life of the loan.

Final Rule