SBA loan rules are changing significantly on Oct. 1, 2026.
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The Trump administration is poised to institute a sweeping round of changes to how the Small Business Administration approves guaranteed loans of all sizes. The 416 pages of revised rules, which take effect on Oct. 1, are likely to roil small business investors, while also shrinking default rates and lessening the overall risk of SBA loans. For some borrowers, and in particular those buying businesses worth $350,000 or less, the changes will also mean more paperwork and longer waits for loan approvals, experts say.
The new standard operating procedure, or SOP, issued on Aug. 14, contains dozens of regulatory updates that will directly affect loan approval processing, particularly for loans being used to acquire businesses. That means there will likely be several weeks of confusion as loan applicants and bankers alike adjust to the new restrictions, experts told Forbes.
“It’s going to be a rocky six to eight weeks” after Oct. 1, predicts Kevin Henderson, a partner at Florida’s SMB Law Group, which specializes in advising small business buyers and sellers. “Worst-case scenario is, deals blow up,’’ he adds.
“If you are getting an SBA loan, you need to be asking yourself which SOP you would fall under,” warns Scott Oliver, who specializes in commercial finance at Indianapolis law firm Lewis Kappe. “What may be eligible for a loan closing today might not be eligible for a loan closing on Oct. 5, assuming approval was after that Oct. 1 date. It all comes down to when your loan was approved.”
The new rules are numbered SOP 50 10 8.1, meaning the Trump administration considers them an update to changes it made in SOP 50 10 8.0 in June of 2025. Henderson said last year’s new SOP was a “comprehensive rewrite” of lending rules, and this year’s update has even more significant changes that could drive down the overall number of SBA loan approvals in coming months, simply by tightening regulations and oversight.
The number of SBA 7(a) loans has already dropped in fiscal year 2026 (that ends on Sept. 30) by almost 30% from the prior fiscal year from 74,830 to 52,924 loans. The dollar value of those loans has declined a more moderate 16% from $34.9 billion to $29.4 billion. On the flip side, SBA loan default rates have also risen in recent years, in part because of pandemic-era loans that went bad but also due to more permissive SBA lending policies under President Joe Biden. Those policies have largely been reversed under the second Trump administration.
By and large, the new package of rules is drawing praise from SBA loan professionals, who say that some of the changes are in line with practices that are already standard among lenders and deal brokers, meaning they’re likely to weed out loan applicants that shouldn’t be approved anyway. “It is a shift toward more conservative lending practices, but not necessarily in a bad way,” says Oliver. “They’re asking for deeper due diligence where the SBA is seeing greater transactional risk.”
The changes will inevitably create some winners and some losers, says Eric Hsu, founder and managing attorney at Clear Focus Law in Washington State. “It’s honestly going to shift things in favor of the well-disciplined, well-prepared, smart buyers. They’re the ones who were probably following most of this playbook anyway,” he says.
Here are some of the most significant changes:
Only U.S. Citizens Qualify for SBA Loans
This tightens even further restrictions the Trump administration first put in place in March of 2025. Back then, the administration barred anyone except citizens and lawful permanent residents (i.e. green card holders) from getting SBA loans. That meant that businesses couldn’t have others as investors, let alone primary borrowers. In the June 2025 rewrite, it made clear that those permanent residents had to have held that status for at least six months and extended the citizen/permanent resident requirement to key employees who manage a business, in addition to its owners and investors.
In the rules that take effect on Oct. 1, the SBA has tightened the rule even further to rule out lawful permanent residents, so that only full-fledged American citizens can get SBA-guaranteed loans or be involved as investors or key employees of a business seeking one of the loans.
“Now it’s citizens only, period, full stop,” says Henderson.
More Paperwork for Deals of $350,000 or Less
SBA-guaranteed loans for $350,000 or less that are used to acquire small businesses will now have to endure the standard 7(a) underwriting process, and won’t be able to take advantage of the “express” loan procedure that had long been available. That’s likely to add significant time and effort to the smallest of acquisition deals, Henderson says.
“For people buying deals that small, yeah, that’s a pretty big shift,” Henderson notes. The express loans, he adds, usually took only up to a few weeks to be approved, while the standard underwriting process takes closer to three months.
“It’s going to be more expensive and it’s going to be a longer underwriting process,” says Hsu. “For buyers, I think it’s going to thin out the field.”
And More Paperwork for Deals Over $3 Million
Quality of earnings reports – which function as sort of miniature audits – have never been mandated for SBA loans in the past. Now, they will be required for any loan amount of $3 million or more used for an acquisition. That could add extra cost and delay to a deal, but isn’t out of line with what many banks already expect from borrowers, noted Hsu.
“Most people were already paying for what they believed was a quality of earnings type report and analysis,” Hsu says. “I haven’t really worked with anybody who said, ‘Yeah, $3 million or larger, I’m just going to go with my gut.’ Everybody at that deal size is like, ‘This is a big deal. I need a quality of earnings (report).’”
Quality of earnings reports typically cost between $15,000 and $40,000 and can take anywhere from several weeks to multiple months to prepare, Hsu estimates, though he said about three weeks is probably average. Henderson says he’s found many quality of earnings reports for lower fees, in the $5,000 to $7,500 range, with a multi-million-dollar deal QOE report usually costing $15,000-$25,000, which isn’t material in a multimillion dollar deal.
The bigger downside? The wait.
“A lot of brokers still don’t like it because it slows things down. Obviously it holds them and their sellers to the fire that their earnings are actually correct,” Henderson says. “Quality of earnings is the number one thing that kills deals.”
Investors Can’t Get Their Money Back Until the SBA Does
A new rule bars equity investors from recouping any cash they inject into an SBA-backed loan made after Oct. 1 until the loan is paid back in full. That’s a major switch from past years, which investors were able to contribute some capital to a purchase and then get their money back from the owner in a relatively short span of time. But under the new rules, investors would have to wait up to a full 10 years – the lifespan of most SBA loans – to get any of their cash back.
This is a factor primarily in acquisition loans, but also would affect an SBA loan used to expand a business if the investor injected cash to meet equity requirements for the loan.
“That essentially relegates them to the sidelines. Most investors aren’t interested in sticking around waiting for 10 years,” Hsu says. “I’ve talked to a lot of investors who feel like they’re getting shown the door.”
The rule is another tightening from last year’s rewrite, Henderson notes, from somewhat loose guidance to “an outright prohibition.”
“What that means in practice, I fear, is that most investors that were interested in the space are no longer going to be interested in the space,” Henderson adds. “If I’m asking you to put $100,000 into my deal, and I tell you, ‘You have to get comfortable with the idea of parking that money for a decade before you’ll get it back,’ that is just not interesting to you.”
The SBA’s likely purpose with such a move, Henderson says, is to discourage private equity firms from gobbling up too much of the private sector with the help of federally-backed loans.
“The ‘why’ is that the SBA program, because it’s a government guaranteed program, it’s not intended to be private equity-light,” Henderson says. “What they don’t want is to turn the use of the SBA program into an option for private equity investors to deploy capital, fly under the personal guarantee radar, and make a bunch of investment returns for investors on the back of taxpayers.”
Sellers Can Remain With a Business for Two Years
One change in the new SOP has been wanted by deal brokers and entrepreneurs for years: an allowance for sellers to stay on as a consultant in a transitionary role with their newly-sold businesses for up to two years, an increase from 12 months.
That’s a boon to buyers, particularly those who are purchasing firms in industries that require specialized licenses, such as plumbing businesses and other trades, Henderson says.
“Particularly in licensed businesses, that’ll be important,” Henderson says. “There are a lot of buyers that want to buy an electrician company, but they aren’t a licensed electrician, and it takes a long time to get that license.”
An SBA spokesperson did not respond to a request for comment for this story. But the SBA has been holding training seminars and office hours to answer questions on the changes for lending professionals, with the most recent session having taken place Sept. 15, according to the National Association of Government Guaranteed Lenders. Lenders will also be able to pose questions at an upcoming “office hours” meeting on Sept. 23 at 2 pm EST.
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