The U.S. Small Business Administration (the SBA) issued the new Standard Operating Procedures (SOP) 50 10 7, Lender and Development Company Loan Programs, which took effect on August 1, 2023. This new SOP incorporates numerous changes to the SBA 7(a) Loan Program. While there are numerous technical changes that apply to lenders, there are two changes that are of particular importance to borrowers considering SBA guaranteed financing.
One major change is that partial ownership changes may now be financed with loans made under the SBA’s 7(a) loan. SBA Procedural Notice 5000-847027 highlights this change and other changes in SOP 50 10 7 versus the previously issued SOP 50 10 6. Before the passage of this SOP, loans to an individual or entity who were purchasing only a portion of the equity in a business were prohibited under the 7(a) loan program. This change opens the door to more borrowers and deal structures that would have previously been ineligible for SBA 7(a) loans.
Another change is the SBA's elimination of the SBA Franchise Directory and the concept of control of a person or entity over another entity when considering affiliation issues. SBA Procedural Notice 5000-846607 details SBA's revisions of the policies and procedures pertaining to affiliation. The SBA previously maintained the SBA Franchise Directory on its website, which contained the names of franchises that the SBA determined were not affiliated with its franchisees. Under the prior SOP, the proceeds of a 7(a) loan could not be used for a franchised business unless the franchise was listed on the SBA directory and an executed franchise addendum was obtained. SOP 10 50 7 removed these requirements; however, the SBA has not released guidance on how franchise agreements and franchised businesses should be reviewed under the new SOP.
For more information on the SBA's new rule changes and the SOP 50 10 7, please contact Richard Boswinkle or Madeline Morgan.
