WASHINGTON— The Small Business Administration has strengthened underwriting requirements for 7(a) loans with the release of a new Standard Operating Procedure document.
The 7(a) program is a loan guarantee program designed to encourage lenders to provide loans to small businesses that might not otherwise have access to financing. Under the previous administration, SBA loosened underwriting requirements through a 2023 final rule that many have attributed to the recent rise in default rates for 7(a) loans, the ABA Banking Journal explained.
The SOP also reinstated the franchise directory — a resource that assisted 7(a) lenders with determining the eligibility of a franchisee for a 7(a) loan before it was discontinued in 2023. In addition, the SOP restored a requirement that small business borrowers provide a 10% equity injection when the borrower is a startup or when the borrower is purchasing an existing business, the ABA Banking Journal explained.