SBA Loans Just Got Harder to Qualify For

Some borrowers may soon find it harder to access SBA financing, following the Trump Administration’s recent release of new SBA loan guidelines.

The SBA had previously moved to give lenders more flexibility and agency in underwriting loans, under the Biden Administration, but this resulted in increased defaults with the 7(a) lending program losing money for the first time in 13 years^[0]

Here are seven of the most significant changes to SBA loan guidelines, as well as expert tips to help you navigate the updated process.

• When this change goes into effect: June 1, 2025.

• Loan program this applies to: 7(a) loans.

The new SBA loan guidelines lower the threshold for what’s considered a 7(a) small loan. Previously, 7(a) small loans were loans up to $500,000, but the new rules lower this amount to $350,000.

7(a) small loans have more lenient underwriting criteria (e.g. fewer collateral requirements) and a simpler application process compared with standard SBA 7(a) loans. Because these loans are smaller and pose less of a financial risk, lenders can process them faster.

The change to the maximum loan amount means that more applicants will have to go through a more rigorous process.

• When this change goes into effect: June 1, 2025.

• Loan program this applies to: 7(a) loans.

In addition to the loan size changes, the new guidelines also raise the prescreen business credit score requirement for 7(a) small loans. With the old rules, you had to receive a FICO Small Business Scoring Service (SBSS) score of at least 155 (scores range from 0 to 300) to be eligible for a 7(a) small loan. If you didn’t pass the prescreen, the lender could choose to continue with your application as long as additional documentation was provided.

With the new guidelines, you must receive a score of at least 165. If your business doesn’t meet the minimum, lenders have to underwrite your application using the stricter requirements for standard 7(a) loans.

The SBSS score is calculated using consumer credit bureau data, business credit bureau data, borrower financials and application data.

• When this change goes into effect: June 1, 2025.

• Loan program this applies to: 7(a) loans.

Under the Biden Administration, guidelines were established that gave SBA lenders the flexibility to apply their own credit standards to SBA 7(a) loan underwriting. Referred to as the “Do What You Do” approach, lenders were instructed to follow the same requirements they implemented for similarly sized, non-SBA business loans.

Now SBA lenders must follow specific underwriting criteria provided by the SBA.

For example, the previous rules allowed lenders to use their own policies and judgment to decide whether new businesses need to provide a down payment. Now, the updated guidelines specify that startup businesses (those operational for one year or less) have to contribute a 10% down payment.

• When this change went into effect: March 7, 2025.

• Loan programs this applies to: 7(a) and 504 loans.

Businesses must now be 100% owned by U.S. citizens, U.S. nationals or unconditional lawful permanent residents (LPRs) to qualify for an SBA loan.

Previously, businesses only needed to have 51% ownership by individuals in those categories to be eligible. Now, if any partial owner of a business falls under an ineligible category, the company cannot receive an SBA loan.

Ineligible ownership categories include:

• Individuals granted asylum.

• Deferred Action for Childhood Arrivals (DACA) recipients.

As a result of this change, SBA lenders must also take additional steps to verify and document citizenship during the underwriting process.

• When this change goes into effect: June 1, 2025.

• Loan programs this applies to: 7(a) and 504 loans.

To qualify for an SBA loan, borrowers must have failed to get financing from traditional sources, such as a bank or credit union. During the application process, SBA lenders must confirm and document that the borrower cannot get a loan from other sources, known as the “credit not available elsewhere” test.

Under the Biden administration, a borrower’s personal finances were off limits as part of this assessment. Now, the SBA requires lenders to once again consider your personal finances to determine whether credit is available. Lenders have to determine if some or all of the requested loan is available from anyone with 20% or more ownership in the business.

For example, if you’re requesting an SBA loan of $500,000 and you have personal savings of $2 million, the lender could determine that you could reasonably use your own money for financing — in other words, you have credit available to you elsewhere.

• When this change goes into effect: June 1, 2025.

• Loan programs this applies to: 7(a) and 504 loans.

The new SBA loan guidelines have lowered the threshold for when hazard insurance is required. Hazard insurance is a business insurance policy that covers the cost of replacing property that’s damaged in an accident or natural disaster. The SBA requires hazard insurance on real estate and personal property used as collateral for SBA loans.

Previously, hazard insurance was only needed on SBA 7(a) and 504 loans of more than $500,000, but now all loans above $50,000 must have hazard insurance.

SBA Express loans are the exception to this rule. Lenders do not have to require hazard insurance on Express loans — but if they don’t, they must provide the reason why in the loan file.

• When this change goes into effect: June 1, 2025.

• Loan programs this applies to: 7(a) and 504 loans.

The new SBA loan guidelines have reinstated the use of the franchise directory (which was previously eliminated in May 2023). The franchise directory is a document that lists acceptable franchises that are eligible for SBA loans. The directory is designed so that lenders can easily evaluate franchise eligibility — without having to review franchise or other brand documentation.

If your franchise is not listed, the lender will deny your application, but can advise you or the franchise on how to get included.

With the implementation of the new SBA loan guidelines, small-business owners may face a slower, more detailed process when applying for financing. Following these expert tips can help you put yourself in the best position for approval.

Choose the right SBA lender

With hundreds of SBA lenders to choose from, it’s important to find the right fit for your business. Chris Hurn, president and CEO of Phoenix Lender Services, recommends working with an SBA lender that’s part of the preferred lender program (PLP). These lenders, he said via email, “know SBA lending inside and out, so the entrepreneur’s borrowing experience will always be better.”

Preferred lenders not only have tested experience with SBA loans, but they also can approve applications without sending them to the SBA, thereby speeding up the funding timeline.

As you compare options, you might also consider a community bank or a community development financial institution (CDFI) before a larger bank. These institutions are often better equipped to serve small businesses, Kevin Janusz, vice president and SBA lending manager at Beneficial State Bank, told NerdWallet via email, and offer more tailored, relationship-based support.

Submit thoughtful, high-quality documentation

Both Hurn and Janusz stressed that it’s crucial to ensure that your financial documents are well-organized and up to date. With the changes to the SBA loan guidelines, however, Janusz emphasizes the importance of a formal business plan with monthly projections and a clear written narrative.

As part of these documents, Janusz recommends proactively addressing how potential tariffs might impact your business model, because it can help your lender get comfortable with current economic uncertainties. A tariff calculator can help you figure out how import taxes might affect your bottom line.

“This isn’t just about checking boxes,” Janusz said, “it’s about demonstrating a thoughtful approach to your business’s financial future.”

Utilize support resources

The new guidelines may make SBA loan applications more time-consuming, but you don’t have to go through it alone. There are a variety of free and low-cost resources available to support you through the application process. You can work with your local SCORE office, for example, which can help you prepare your documentation, answer any questions you may have and review your final application.