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# Business Loan Program Improvements

August 10, 2023

On August 1, 2023, SBA implemented policies to expand access to capital for small businesses by modernizing SBA’s signature 7(a) working capital* and 504 fixed asset loan programs. The loan program updates build on industry insights and previous announcements that address long-standing persistent capital access gaps, especially for small-dollar loans and underserved borrowers.

* Generally used for working capital, the SBA 7(a) loan is a flexible product that can also be used for debt refinance, change of ownership, etc.

## Summary of Key Changes

## Implementation Considerations

### Fraud and Eligibility Checks

SBA will determine whether the applicant meets eligibility requirements and check for fraud upfront, so lenders will have timely assurance that the businesses they are lending to are eligible for SBA loans. SBA will validate information through use of APIs connecting to best-in-class private and governmental databases that run overnight and provide data in approximately 24 hours. If SBA detects any compliance issues, the system will produce a *compliance check code* that lenders will either be able to clear on their own, or by working in partnership with SBA by providing additional documentation. Active lenders with CAFS access can access additional information on compliance check codes on the CAFS homepage. If a compliance check code cannot be cleared, the applicant is ineligible for an SBA loan.

Lenders have two options on how to use the fraud and eligibility check:
                  - Pre-check: (Similar in concept to an SBSS pre-score) Lenders may request a pre-check ahead of formal submission by submitting data on the primary business and the associated principals and clicking the button labeled “Precheck Compliance” in ETRAN Origination. Lenders should only use this feature for potential SBA loans.
                  - Submission check: All loans will be checked upon formal submission. This check is the formal determination, as conditions may have changed since the pre-check was conducted.

SBA is continuing to explore how to make the pre-check as simple and streamlined as possible and hopes to announce additional improvements to this feature in the near future.

### SBLC Loan Portfolio

With the exception of CA SBLCs, SBLCs may only make 7(a) loans. Please see SOP 50 56 1: *Lender Participation* Chapter 1, Paragraph A.3, “A Small Business Lending Company (SBLC) is a non-depository lending institution that is authorized by SBA to only make loans pursuant to section 7(a) of the Small Business Act and loans to Intermediaries in SBA’s Microloan program.”

### Affiliation

SBA removed the subjective “control” requirement on affiliation for all business loan programs, focusing instead on affiliation through ownership. Lenders can now provide SBA loans to a broader base of eligible small businesses. This change is critical to provide clarity for small business owners if they qualify for SBA loans and to support small businesses who took on equity investors because they did not have the personal financial resources to bootstrap their businesses.

### SBA Forms

SBA Form 1919 *Borrower’s Information* is being updated to reflect changes in data collection for 7(a) loans, as is SBA Form 1244 for 504 loans. For the 7(a) program, SBA Form 1920 *Lender’s Loan Application for Guaranty* is no longer required as of August 1, 2023, as lenders will submit the terms and conditions with their request electronically in ETRAN.

### Underwriting Criteria Under for 7(a) Small Loans (under $500,000)

SBA provides different underwriting options for 7(a) loans of $500,000 or less to allow lenders to expand their total addressable markets. SBA allows lenders to use the same policies and processes they use to review non-SBA loans of the same type and size. Lenders are permitted to use SBA guidelines on collateral, maturities, equity injection requirements and verification even when the lenders’ policies are more restrictive. These 7(a) Small loans can be underwritten one of four ways:
                  - Through an acceptable SBSS score, currently 155 and above
                  - Through cashflow analysis
                  - Through the lenders same policies and processes they use for similar-sized non-SBA guaranteed loans, including use of credit scoring models
                  - Through the standard, 9-point underwriting criteria used for 7(a) Standard loans over $500,000

### Tax Transcripts for 7(a) Small Loans (under $500,000)

Like underwriting criteria, SBA provided additional flexibility in checking taxes for 7(a) loans under $500,000. Through this change, lenders may follow the same policies and processes they use for non-SBA loans of the same type and size, so long as the lender at minimum collects tax returns to confirm the small business applicant filed taxes.

### Electronically Generated Terms and Conditions Sheet

To reduce the burden of duplicative data entry, SBA is removing the *Loan Authorization Wizard*, and instead will provide an electronically generated Terms and Conditions sheet using the data already entered into ETRAN by clicking the “Terms and Conditions” button. A signature is not required on the Terms and Conditions sheet. This Terms and Conditions sheet will include the pivotal information that was previously on the Loan Authorization, including borrower name, loan fees, loan amount, interest rate, maturity and collateral. The Terms and Conditions sheet may be downloaded and saved, emailed, and/or printed—however the lender previously used the Loan Authorization document.

### For Additional Questions, Contact

                  - cls@sba.gov , for login and other technical questions for 7(a) and 504 loan programs
                  - 7aQuestions@sba.gov , for 7(a) loan program operational questions
                  - 504Questions@sba.gov , for 504 loan program operational questions
                  - SOP5010@sba.gov , for policy questions for 7(a) and 504 loan programs

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