On August 1st, 2023, the SBA released Standard Operating Procedures (“SOP”) 50 10 7 with updated rules for approving and funding loans offered through the SBA’s 7(a) program.
This SOP release makes two major adjustments to the existing program rules:
- Banks are granted more flexibility on loan underwriting.
- Borrowers can qualify for larger loan amounts with fewer requirements and supporting documents.
SBA 7(a) SOP Update 1
What this means for NEWITY Members
Loans up to $50,000 do not need to pledge collateral or provide proof of insurance
While collateral is not needed for loans above $50,000, but if the business has collateral on their balance sheet, these assets must be pledged.
No personal equity injection, deposit needed, nor personal assets are required.
If you previously qualified for a loan up to $25,000, you may qualify for a loan up to $50,000 if you average at least $143,000 in annual revenue.
Your loan size is determined by your average annual revenue, FICO score, and years in operation.
SBA 7(a) SOP Update 2
What this means for NEWITY Members
Simplified rulings on affiliate businesses
Previously, businesses were considered to be affiliated if a 20%+ owner of Business A owns 50% or more of Business B. After the SOP update:
- Businesses are affiliated when both businesses are in the same industry and a 50%+ owner of Business A also owns 50%+ of Business B.
- Ownership interests of spouses and minor children must be combined when determining the amount of ownership interest.
Prior to the update, a restaurant and an engineering firm would be considered affiliates if a guarantor owned 20% or more in one business and 50% of the other business.
Now affiliation is based on both industry and at least 50% ownership interest. This leads to an easier review process alongside fewer required documentations.
SBA 7(a) SOP Update 3
What this means for NEWITY Members
Looser Requirements to Refinance Debt
Businesses may now be eligible for larger loan requests through re-financing existing business debt that has unfavorable terms.
Refinancing eligibility is based on a combination of FICO score, SBSS, EBITDA, and the applicant’s total debt (instead of solely on EBITDA).
Refinancing high interest rate debt has become much easier. For example, BCA Sports took out a $90,000 short-term, high interest rate loan to expand their business. BCA Sports is now seeking an SBA 7(a) working capital loan to continue to grow.
Before the SOP update, BCA Sports would only be eligible for a $25,000 SBA 7(a) loan since their financials worsened due to their high interest rate loan repayments. With the new SOP update, BCA Sports could receive a $250,000 7(a) loan; $90,000 would re-finance their short-term debt and the remaining $160,000 could be used for working capital. These new rules would allow BCA Sports to save over $21,900 in their first month through re-financing their debt with their 7(a) loan.
SBA 7(a) SOP Update 4
What this means for NEWITY Members
Easier loan approvals for $50,001 to $150,000
Credit requirements for loans between $50,001 and $150,000 have eased, making it easier to be approved for loans in this size range.
- Loans are calculated based on business credit scores and active business debt.
- This allows for businesses with strong credit and minimal debt to receive larger funding on reasonable terms they may previously be unable to acquire.
Business owners with strong credit scores and minimal debt could receive a larger loan amount.
For example, Songbird Strength is a CrossFit gym in New Jersey that is seeking working capital to cover payroll while they build a second location.
Previous to the SOP update, Songbird Strength would only be eligible for a $25,000 SBA 7(a) loan. With the SOP update, Songbird Strength’s high credit score and low business debt allowed Songbird to receive a $150,000 SBA 7(a) loan.
SBA 7(a) SOP Update 5
What this means for NEWITY Members
Businesses are eligible to receive a second SBA 7(a) loan 90 days after their first SBA 7(a) loan funding date (assuming their financials are unchanged).
Businesses with $25,000 loans that were funded prior to 8/1/23 could be eligible for an additional $25,000 or more, based on these new credit box updates. To be eligible for additional capital, the business:
- Must have an average revenue that supports a $50,000 loan and meet the same SBA requirements
- Can only obtain a maximum loan of $250,000 through the NEWITY platform
Businesses that are growing rapidly can receive more low interest rate, long-term SBA 7(a) loans as they scale.
For example, Joe’s Autobody requested a $50,000 loan in early 2023 for operational expenses. Based on Joe’s performance in late 2022, they were only eligible for $25,000. Joe’s Autobody moved forward with this loan amount.
With the new SOP updates, Joe’s Autobody reapplied for a second 7(a) loan for $25,000 in August to fulfill their business needs. Since Joe’s information was already in NEWITY’s system, Joe’s Autobody’s application was expedited, allowing Joe’s to be funded with their second $25,000 loan within a week of applying.
SBA 7(a) SOP Update 6
What this means for NEWITY Members
The SBA has increased the maximum small loan size from $350,000 to $500,000
NEWITY is exploring increasing SBA 7(a) loan offerings in its portal to $500,000.
This would allow a business who qualifies for a loan amount above $250,000 to receive a larger loan through NEWITY’s streamlined application process.
SBA 7(a) SOP Update 7
What this means for NEWITY Members
The SBA’s compliance team is reviewing each loan after bank approval, adding 1-3 days to the closing timeline
All loans must undergo this SBA compliance review before funds can be disbursed.
Businesses may need to wait a few extra days before they can receive their loan funds.
While this process is still new, NEWITY has been able to clear any issues noted in the SBA’s compliance review quickly.
Want to see how much funding you might qualify to receive? Get started by completing NEWITY’s 10-minute prequalification application.
