A new procedural notice was just issued on prior loss eligibility rules for SBA loans.
Before everyone starts posting AI slop, it is important to take a step back and understand how much of a shift this is from historical rules. It is another example of the SBA continuing to tighten certain credit and eligibility standards while also recognizing that modern capital structures and investment arrangements do not always fit neatly into older eligibility frameworks.
Alright… I’ll stop being a nerd and get to the good stuff
Historically, if someone owned part of a business that defaulted on an SBA loan and caused a loss to the government, that person could effectively be blocked from future SBA financing.
This seems to makes sense until you realize that this could impact even a small passive investor with no control over the business.
Under the new guidance, the SBA may consider a waiver for a person who:
1: Owned less than 20% of the prior business;
2: Was not a guarantor or co-borrower on the defaulted SBA loan; and
3: Had no control over the business that incurred the loss.
In short… the SBA appears to be recognizing that a passive minority investor should not automatically be treated the same as an owner/operator who controlled the company and the loan.
It is important to note that this is not an automatic approval.
I’m looking at you… social media people who took the last procedural notice to mean that you could go out and snag a $10,000,000.00 7(a) loan.
Spoiler alert… you can’t.
Go read the last notice carefully or shoot me a message.
Anyway…
The SBA will review the waivers case-by-case and evaluate aspects such as:
The person’s involvement with prior SBA loan defaults...
The timing of the default…
How many prior losses exist…
The size of the investment relative to the SBA loan amount…
etc.
This only applies to losses involving SBA 7(a) and 504 loans and does not apply to PPP loans, COVID EIDL loans, or other federal defaults.
Overall, this feels like the SBA is trying to strike a balance between maintaining program integrity while also recognizing how modern investment and ownership structures work in today’s market.
And honestly… that’s a good thing.