New SBA SOP Changes: What Business Buyers Need to Know Before October 1 with Top SBA 7(a) Lender Jared Johnson

Jared Johnson breaks down the latest SBA Standard Operating Procedure changes during a live presentation at Acquire Fort Worth. Drawing on nearly two decades of SBA lending experience, Jared explains how acquisition financing has evolved, why the SBA continues to revise its guidelines, and what the newest rules could mean for buyers, sellers, investors, and lenders.Jared begins with the history of SBA business acquisition lending, including the increase in the maximum SBA 7(a) loan amount from $2 million to $5 million, the shift from 25 percent down payments to 10 percent, and the rapid growth in acquisition financing since 2018. He also examines how looser lending policies, rising interest rates, COVID-era stimulus, and delayed loan defaults influenced the current pullback.He then explains the updated equity injection requirements. Buyers must now provide at least 5 percent of the total project cost from an approved source such as cash, qualifying borrowed funds, or a gift or grant. The remaining portion of the required injection may come from limited sources, including seller debt placed on full standby for the life of the SBA loan.Jared also discusses the new restrictions affecting non-controlling minority equity investors. While investor funds may still contribute toward part of the required equity injection, investors generally must own less than 20 percent, exercise no control, and wait until the SBA loan is repaid before receiving distributions related to that investment. Jared explains why these restrictions could reduce outside investment in SBA-financed acquisitions and change how searchers structure their deals.The presentation also covers the new Quality of Earnings requirement for acquisitions with a purchase price of $3 million or more. Jared explains what a useful Quality of Earnings report should evaluate, why lender ordering requirements may create timing challenges, and how a thorough report can uncover unsupported add-backs, cash-flow issues, customer concentration, and working-capital needs before closing.Jared reviews the increase in minimum debt service coverage for initial acquisitions and partner buyouts, as well as the new treatment of transactions that include both a business and commercial real estate. Buyers can use separate loans or a single loan with a blended term, but they can no longer automatically receive a 25-year term simply because real estate represents most of the transaction.He also explains the revised rules for business expansions, including the two-full-fiscal-year operating requirement, the move from six-digit to four-digit NAICS-code matching, and the ability to add new owners when completing a subsequent acquisition.Jared closes by explaining how buyers should approach transactions currently under consideration, why proposed structures should be reviewed before submitting an LOI, and which parts of the new SOP may still require clarification from the SBA.Main Takeaways:The latest SBA SOP takes effect October 1, 2026, for loans receiving an SBA loan number on or after that dateThe new SOP includes a dedicated section addressing business acquisition financingBuyers must provide at least 5 percent of the total project cost from an approved unlimited equity injection sourceApproved sources may include cash, qualifying borrowed funds that can be repaid from outside income, and certain gifts or grantsSeller debt on full standby for the life of the SBA loan may cover up to half of the required equity injectionNon-controlling minority equity investors generally must own less than 20 percent and cannot exercise control over the businessInvestors whose funds count toward the required equity injection may be unable to receive distributions until the SBA loan is repaidInvestor capital contributed beyond the required injection may have greater flexibility, although lender covenants may still restrict distributionsAcquisitions with a purchase price of $3 million or more now require a Quality of Earnings reportThe lender must order the required Quality of Earnings report, creating questions about timing, responsibility, and whether previously ordered reports can be usedQuality of Earnings reports should verify cash flow, add-backs, customer concentration, proof of cash, and other financial informationDue diligence costs, including reasonable Quality of Earnings expenses, may be included in loan proceedsMinimum debt service coverage increased from 1.15 to 1.25 for initial acquisitions and partner buyoutsTransactions involving both a business and commercial real estate must use separate loans or a combined loan with a blended termBuyers can no longer automatically receive a 25-year term when purchasing both a business and its real estateThe appraised value of the real estate, rather than the allocation in the purchase agreement, determines the blended loan termExpansion acquisitions generally require the existing business to have operated for two full fiscal yearsExpansion eligibility now relies on the first four digits of the NAICS code instead of all six digitsNew owners may be added during an expansion as long as the ownership requirements for the existing business are satisfiedLenders may waive the equity injection for qualifying expansion transactions, but the waiver is not automaticSeller notes generally cannot be refinanced until the borrower has completed 36 months of paymentsBuyers considering a transaction now should assume the new rules will apply unless the SBA loan number is obtained before October 1Buyers should review financing structures with an experienced lender before submitting an LOISome provisions, particularly the Quality of Earnings and investor requirements, may receive additional SBA clarificationLinkedIn: https://www.linkedin.com/in/jaredwjohnson/DISCLAIMER:The views and opinions expressed in this program are those of the guests and host. They do not necessarily reflect the views or positions of my employer.The SBA rules discussed in this episode were newly released at the time of recording and may have since been clarified or revised. Buyers and sellers should consult an experienced SBA lender and their professional advisors regarding their specific transaction.Keywords:SBA SOP changes, SBA SOP 2026, SBA business acquisition loan, SBA 7(a), buying a business, business acquisition financing, October 1 SBA changes, SBA equity injection, SBA down payment, seller standby note, seller financing, equity investors, search fund, entrepreneurship through acquisition, ETA, Quality of Earnings, QoE requirement, business acquisition due diligence, debt service coverage ratio, DSCR, commercial real estate financing, blended loan term, SBA expansion loan, partial change of ownership, business acquisition lender, Acquire Fort Worth, Jared Johnson, small business acquisition, acquisition financing, non-controlling minority equity investment, SBA seller note, SBA loan requirements