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The SBA's 7(a) loan program has been the primary source of government-backed small business financing since 1953. It works by having the SBA guarantee a portion of loans made by private lenders to businesses that do not qualify for conventional credit, which allows lenders to extend capital they otherwise would not.

In fiscal year 2024, the program approved more than 70,200 loans totaling $31.5 billion, with an average loan size just over $440,000. Fiscal year 2025 set an all-time record at $44.8 billion in guaranteed loans. That figure makes the program's continued vitality difficult to dispute. 

Borrowers can access up to $5 million for working capital, equipment, real estate, or debt refinancing, at interest rates that vary based on the prime rate and currently range from approximately 9.75% to 13.25% for most fixed-rate loans.

The program is still open and still functioning at scale. What has changed is the bar for getting in.

Between 2021 and 2024, the SBA loosened its underwriting standards under what it called its "Do What You Do" policy, which allowed lenders to approve borrowers under their own internal criteria rather than the SBA's traditional standards. Lender fees were also eliminated during this period. The result, according to the SBA's own April 2025 announcement, was that defaults doubled and the program ran a cash shortfall of roughly $397 million, which is the first time that had happened in thirteen years. The program is statutorily required to operate at zero cost to taxpayers, sustained entirely through lender fees and recoveries.

In response, the SBA issued SOP 50 10 8 in April 2025, reinstating stricter underwriting standards and restoring lender fees. Those changes are now fully in effect, and 2026 has brought additional updates with direct consequences for applicants.

The most consequential change of early 2026 involves ownership eligibility. Effective March 1, every direct and indirect owner of a business applying for a 7(a) loan must be a U.S. citizen or U.S. national with their principal residence in the United States. Lawful permanent residents are no longer eligible regardless of ownership percentage, and U.S. citizens who reside abroad also fail the residency requirement. Even a 1% stake held by a non-qualifying owner disqualifies the entire application. Any business with a mixed ownership structure should resolve that question before approaching a lender.

Also, effective March 1, the SBA eliminated its longstanding requirement that small loans (those under $350,000) pass through a standardized credit scoring model called the FICO Small Business Scoring Service, or SBSS. Lenders are now free to use their own internal credit models for these loans, though many will continue using SBSS voluntarily since it is embedded in their existing systems. The practical consequence is that underwriting standards will vary more from lender to lender than they have in the past. An application declined at one institution may be approved at another, which makes both lender selection and thorough preparation more valuable than they used to be.

For all loans, lenders must verify that the business generates sufficient cash flow to service its debt. For small loans, the SBA has set the minimum debt service coverage ratio at 1.1 to 1, meaning the business must produce at least $1.10 in operating cash flow for every $1.00 in debt payments. Startups and ownership-change transactions require a 10% equity injection, with the buyer or incoming owner must bring at least 10% of the loan amount in verified cash or equity. One restriction that catches some borrowers off guard: merchant cash advance debt cannot be refinanced using SBA loan proceeds, and any existing MCA obligations will be counted in your debt service coverage calculation, reducing the headroom available for new debt.

With underwriting standards restored to their pre-2021 levels and lender fees reinstated, applications are being evaluated with considerably more rigor than they were two or three years ago. At its core, every lender is trying to answer the same question: given this business's history, its cash flow, and its ownership, is repayment reasonably assured?

Cash flow is the foundation of that analysis. Consistent operating income that covers proposed debt service at the 1.1 to 1 ratio is the floor, not a bonus. Lenders will examine two years of tax returns alongside current profit and loss statements and balance sheets, and they will be looking for stability, not just a strong most-recent year.

Credit history matters alongside cash flow, though with SBSS eliminated for small loans, lenders will weigh it differently. A personal credit score of 650 is generally the practical minimum, but scores of 680 and above are meaningfully more competitive in the current environment. Because individual lenders now apply their own models, a borrower near the margin should not assume a uniform result across institutions.

Collateral rounds out the picture. Business assets, equipment, and real estate are all evaluated. For transactions requiring an equity injection, the 10% must be documented and sourced before the application advances. Lenders are not looking for perfection across all three of these dimensions, but weakness in more than one of them will make approval difficult.

Lender selection has become more consequential than it once was, for two reasons. First, with SBSS eliminated for small loans, underwriting criteria now vary across institutions. Second, approval timelines differ significantly depending on whether your lender holds Preferred Lender Program status. Preferred lenders (such as experienced SBA lenders like Chase, Wells Fargo, and First Internet Bank) have delegated approval authority and can typically fund in two to four weeks. Non-preferred lenders route applications through the SBA for approval, which currently runs six to ten weeks. If timing is a factor, a Preferred Lender should be your first call.

The SBA's free Lender Match tool is a practical starting point. It takes roughly five minutes and returns results within 48 hours. From there, contact two or three lenders directly and ask each one whether they hold Preferred Lender status, what their average approval timeline is for a loan of your size, and how they are currently underwriting small loans given the recent SBSS changes. Those questions will tell you quickly whether a given lender is well suited to your situation.

Understanding what lenders are looking for is one thing. Translating that into a fundable application is another, and the gap between the two is usually preparation.

Begin with your ownership structure, because no amount of strong financials will move an application forward if the ownership eligibility question is unresolved. Confirm that every direct and indirect owner meets the March 1, 2026 citizenship and residency requirements before taking any other step.

From there, the work is largely documentary. Two years of business tax returns, a current profit and loss statement, a balance sheet, and a complete accounting of existing debt obligations form the baseline package. If your business is less than two years old, a detailed business plan with financial projections becomes essential in place of the historical record. In either case, your books need to be clean and reconciled. Lenders are experienced at reading financial statements, and disorganized or inconsistent records raise questions that are difficult to answer after the fact.

Know your own cash flow numbers before a lender calculates them for you. Run your debt service coverage ratio yourself using your actual figures. If the result is marginal, it is far better to address that before submitting an application than to receive a decline and start over.

For a deeper look at tracking your cash position accurately and efficiently, take a look at our previous article: How to Track Your Net Cash in 10 Minutes a Month

Once an application is approved and a loan agreement is on the table, have a qualified attorney review it before you sign. Personal guarantees are standard in SBA lending, and the collateral provisions, default triggers, and any auto-renewal clauses carry consequences that are not always apparent on a first read. The cost of that review is modest relative to the obligations you are about to assume.

The 7(a) program put $44.8 billion to work for small businesses last year, and that capital is still available to borrowers who come prepared. The program exists for small businesses, as it always has. What changed is that the period of relaxed standards is over, and lenders are once again doing what sound lenders have always done: looking for businesses with real cash flow, clean records, and owners who understand what they are getting into. If that describes your business, the program is very much open for you.

Question: I have an employee that does a great job but his attitude around other workers is terrible. He’s loud, negative and always talking back and questioning managers about tasks in front of other employees. Strange, but he is always on time and does a good job on tasks. The problem is that he’s become a cancer at our small company, but his good work doesn’t outweigh him being so toxic. How do you fire somebody like him? 

Answer: Carefully! To quote our friend Mike Perkins at Frontline HR, “document, document, document.” Unlike most situations, at least he is a good worker, even though he’s toxic. So, if you haven’t already been documenting his bad behavior, you have some time to do so. And, if he is difficult to manage, you can expect him to be difficult during and after you fire him.

Some employees think similar behavior is “funny.” If that is the case, then he may simply need to be sat down and explained that his behavior is not funny and is causing problems. 

If not, writeups and documentation will be key. If you don’t have documentation to follow from a similar situation, try: 

“Concerns-Expectations-Consequences-Acknowledgement”

We don’t know the details, but here is a hypothetical write up using the CECA format:

Employee Name: [Employee’s Name]
Date: [Today’s Date]
Supervisor: [Manager’s Name]
Subject: Formal Written Warning – Unprofessional Conduct

Summary of Concerns:
While your work performance and punctuality consistently meet expectations, there have been recurring concerns regarding your interpersonal conduct in the workplace. Specifically:

Expectations Moving Forward:
Professional behavior is essential to maintaining a positive and productive work environment. Effective immediately, you are expected to:

Consequences:
Failure to immediately and consistently improve in these areas may result in further disciplinary action, up to and including termination of employment.

Acknowledgment:
(Please sign below to acknowledge receipt of this written warning. Your signature does not necessarily indicate agreement.)

Employee Signature: ___________________
Date: _______________

Manager Signature: ____________________
Date: _______________

_________________________________________

Don’t delay in having the discussion and writing him up. Good luck!

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!