Business Insights

Introduction to the SBA’s 7(a) and 504 Program Changes

Luke LaHaie and Dave Cody
8 minutes to read

How 2023 SBA Business Loan Program Changes Will Affect Small Businesses 

We sat down with NEWITY’s Co-CEOs, Luke LaHaie and David Cody, to hear their insights on the latest updates to the Small Business Administration’s 7(a) and 504 Loan Programs.   

1. Is the new SBA Ruling technically finalized? 

Yes, the final rules on Affiliation and removal of the Loan Authorization are effective as of May 11th and May 12th, respectively. The entirety of the SBA’s changes are scheduled to be effective as of August 1st.    

2. How will the new rules affect small business owners?

The new rules are intended to simplify access to the SBA 7(a) and 504 loan programs for the smallest U.S. businesses. The rules aim to simplify the application process and reduce required documentation. Specifically, some of the updates include:  

  1. Allowing business owners to use 7(a) or 504 loans to make partial changes of ownership  
  2. Reducing the number of items that must be reviewed to determine a business owner’s creditworthiness  
  3. Using a scoring model to streamline business creditworthiness 
  4. Only requiring Hazard Insurance for loans greater than $150,000  
  5. Simplifying requirements for entrepreneurs that own multiple businesses, franchises, or have license agreements 
  6. Revising the reconsideration process after a loan application has been denied or modified 

3. Why is the SBA making these changes now?  

These changes aim to achieve the SBA Administrator’s mission to provide access to capital to American small business owners that have historically struggled to access the programs’ benefits due to 7(a) and 504 rules and requirements.     

The SOP 50 10 7 has been much anticipated. All of us at NEWITY, and other SBA industry participants who are serious about achieving the mission to provide access to capital for small businesses, welcome the changes to simplify loan eligibility.  

4. What is the controversy surrounding these rules?

Nearly all parties are aligned in wanting to deliver capital to small businesses and create equitable access to the 7(a) and 504 loan programs, but every industry participant doesn’t agree on the best way to accomplish that goal.   

Following the SBA’s significant role in distributing pandemic support funds and the issues that arose in the rapid distribution of those funds, the SBA’s new rules have been met with concerns from different actors in the industry. Most of the resistance is centered around the SBA’s ability to regulate new entrants to the 7(a) program; one of the SBA’s new rules would allow more companies to offer 7(a) and 504 loans by removing the limit of Small Business Lending Company (SBLC) licenses.   

The SBA has proceeded with implementing these new rules despite resistance from Congressional committees and industry groups’ adverse commentary.   

5. What is the most important takeaway from these new rules that people may miss?

The new rules are a clear demarcation of the SBA’s willingness to evolve to meet the needs of modern small business owners. The rules also reflect the SBA’s acknowledgement that its processes can continue to evolve to better reach the small businesses it seeks to serve. 

NEWITY supports the SBA’s continuous exploration of methods and practices to expand distribution of capital to American small businesses.   

To see if you prequalify for an SBA 7(a) Loan today, visit our portal HERE 

To qualify for an SBA 7(a) small business loan, your business must be:

  1. U.S.-based and operated
  2. Owner supported / owner funded
  3. Eligible per the SBA’s requirements

Your loan amount will determined by the business’ average annual revenue, FICO score, and years in business