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SBA Changes Effective June 1, 2025 – What You Need to Know
1. Equity Injection + Seller Note Standby Rules
• SBA still requires a 10% minimum equity injection for business acquisitions, startups, and ownership changes.
• Buyers must inject at least 5% of the project cost from their own funds.
• A seller note can only cover up to 50% of the required equity (i.e., 5%).
• Seller notes used for equity must now be on full standby for the full 10-year SBA loan term—no payments of principal or interest allowed during that time.
2. “Credit Elsewhere” Rule Reinstated
• The SBA has reinstated the Credit Elsewhere requirement. This means that borrowers who have access to sufficient capital—whether through personal funds, investments, or conventional loans may no longer qualify for SBA financing.
• This update will primarily impact high net worth individuals who could self-fund a transaction.
3. Seller Retained Equity = Personal Guarantee
• If the seller retains any amount of ownership (1% or more), they must:
o Personally guarantee the SBA loan for 2 years
o If their retained equity is 20% or more, they become a full guarantor for the life of the loan
4. SBA Franchise Directory Returns
• The SBA Franchise Directory has been reinstated.
• SBA loans can only be used to finance franchises listed in the directory.
5. Citizenship & LPR Ownership Requirements
• Effective March 7, 2025, SBA financing is only available to businesses that are 100% owned by:
o U.S. Citizens
o U.S. Nationals
o Lawful Permanent Residents (LPRs)
• No ownership interest of any kind is allowed for non-citizens, including visa holders.
