On August 14, 2026, the U.S. Small Business Administration (the SBA) announced the issuance of Standard Operating Procedure (SOP) 50 10 8.1, Lender and Development Company Loan Programs, which will become effective on October 1, 2026, according to SBA Policy Notice 5000-880695. SOP 50 10 8.1 will apply to all lending applications that are issued an SBA loan number on or after October 1, 2026, and is intended to build upon the 7(a) lending criteria that were reintroduced pursuant to SOP 50 10 8.0, which went into effect on June 1, 2025, and replaced SOP 50 10 7.1. While some of the changes to the SBA 7(a) lending provisions described under SOP 50 10 8.1 are meant to streamline the lending process altogether, these changes also signal a shift toward more conservative underwriting and lending practices, and they make it increasingly important for buyers and sellers to structure the transaction around SBA requirements from the beginning. This blog examines certain key changes and, more importantly, what SOP 50 10 8.1 could mean for buyers, sellers, and lenders as they negotiate and structure SBA-financed acquisitions.
- Restrictions on Ownership by Non-U.S. Citizens Narrow Overall Access to SBA Financing.
One of the most significant changes contained in SOP 50 10 8.1 is the change in citizenship and residency requirements. Under SOP 50 10 8.0, which will remain in effect until September 30, 2026, the SBA will finance business applicants with 100% direct and/or indirect owners and SBA-required guarantors who are lawful permanent residents (commonly referred to as “green card holders”). Under the revised SOP 50 10 8.1, however, SBA financing will be limited to applicants who are U.S. citizens or U.S. nationals who have their principal residence in the United States. Furthermore, to the extent that an entity is owned by another entity, such entity must be created, organized, or incorporated in the United States. As a result, no SBA loan may be made if any direct or indirect owner or SBA-required guarantor is an “Ineligible Person” (as defined in Appendix 3 of SOP 50 10 8.1). In other words, these changes significantly narrow the pool of SBA-eligible owners and create a potential issue for existing or prospective borrowers with non-U.S. citizen owners. Lenders will need to carefully review both the direct and indirect ownership and required guarantors to ensure that an applicant satisfies these new requirements before an SBA loan can be approved and funded.
- Historical Cash Flow May Matter More Than Projections.
SOP 50 10 8.1 will also increase the debt-service coverage requirement for most change of ownership transactions from 1.15x to 1.25x. As a result, projections generally will not be able to make up for a shortfall in historical cash flow. A buyer may have a strong plan to increase revenue, reduce expenses, or otherwise improve the business down the road, but that future growth may no longer be enough to support an acquisition that does not work based on the company’s historical performance. For buyers, this means that the quality and sustainability of a seller’s reported earnings will become even more important. It also means that a business with attractive growth potential may nevertheless be difficult to finance if its existing cash flow cannot support the proposed debt.
- Heightened Underwriting Requirements May Lead to More Scrutiny of Smaller Acquisitions.
SOP 50 10 8.1 will also modify certain underwriting requirements for both standard 7(a) loans (over $350,000) and 7(a) small loans ($350,000 or less). Under this new approach, all acquisitions will be treated as standard 7(a) transactions regardless of their size, meaning that the buyer and lender will be subject to further requirements, including but not limited to a full credit memorandum, an independent valuation, site visits for both the applicant and the business being acquired, and the passage of the historical cash-flow test. Because of this, a relatively small acquisition may now receive much more scrutiny than buyers and lenders have historically experienced. As a result, once SOP 50 10 8.1 goes into effect, a buyer and its prospective lender should ideally establish their financing structure prior to entering into any letter of intent or formal negotiations, since these heightened requirements could become problematic later on in the transaction.
- Quality of Earnings Report Shifts Focus to a Target’s Current Profitability.
For larger transactions, the diligence burden would also increase and shift the focus of a prospective buyer to a target’s current profitability. For acquisitions with a purchase price of $3 million or more, a Quality of Earnings report would be considered mandatory in addition to a business valuation. As a result, the lender’s analysis would include a cash proof, which reconciles bank activity to tax returns, as well as an analysis of customer concentration. This is significant because reported profitability does not necessarily tell the entire story of a business, and a target whose earnings depend heavily on a small number of customers presents a different risk profile from one with a diversified customer base, even if those two businesses report identical EBITDA.
- Equity and Liquidity May Play a Bigger Role in the Transaction Structure.
The changes under SOP 50 10 8.1 also place greater emphasis on how much real equity a buyer has in the transaction and how much liquidity remains after closing. Certain transactions, including business expansions and partner buyouts, would be subject to a minimum equity injection of at least 10%. At the same time, different forms of non-cash equity, including qualifying seller and third-party notes or standby debt, would be considered together when determining how much of the required injection can be satisfied without cash and shall not collectively represent more than half of the minimum equity injection. The practical effect is that buyers will need to think beyond simply having enough money to close. Additionally, lenders will be looking at whether a buyer has sufficient financial strength and liquidity to operate the business once the transaction is complete.
Conclusion
Taking all of the aforementioned changes under SOP 50 10 8.1 into account, they point toward a more disciplined acquisition-financing environment with respect to 7(a) loans. With these heightened requirements and rules, the central question will increasingly become whether the purchase price, independent valuation, historical cash flow, buyer equity, and post-closing debt all tell the same story and provide a sound foundation for the approval of a 7(a) loan. Buyers should therefore evaluate debt capacity before becoming committed to a purchase price, sellers should understand how financing constraints may affect the terms that they can realistically obtain, and both sides should address valuation, seller financing, liquidity and licensing issues as early as possible in negotiations. As a result of these changes, the biggest takeaway is that SBA financing should be treated as part of the transaction architecture instead of a financing product that can simply be layered onto an already-negotiated deal. A transaction that works economically from the outset will have a much better chance of surviving the more rigorous underwriting environment described by the forthcoming changes under SOP 50 10 8.1.
If you have any questions regarding SOP 50 10 8.1 or how this may impact a potential acquisition, PilieroMazza attorneys are here to assist you. Please contact Isaias “Cy” Alba, IV, Abigail “Abby” Baker, Ashley Krause, or another member of the Firm’s Mergers & Acquisitions, Business & Transactions, or Government Contracts practice groups.
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