The SBA business acquisition loan program is often referred to as a 7(a) loan, which is the U.S. Code section authorizing the popular program.

There are important changes to the program that will take effect on October 1, 2026.

The recently changed rules are detailed in the SBA’s Standard Operating Procedure (SOP) number 8.1.  The document is a cure for insomnia, but we’re simplifying the important changes below.

Change #1: The 125% debt-service-coverage requirement.

The minimum debt-service coverage ratio becomes 1.25 to 1, and the lender generally has to demonstrate it from historical/adjusted earnings rather than simply relying on optimistic post-acquisition projections.

As an explanation, if a company is producing a conservatively computed annual net cash flow of $300,000 and a reasonable salary for the new owner is $100,000, that leaves $200,000 available for total debt service.  This $200,000 must be at least 125% of the actual annual debt service (principal and interest) due on the business acquisition loan.

This may become especially important on businesses being priced aggressively at high multiples.

Change #2: Loans from $3 million and over require a Quality of Earnings report.

This may be the most consequential new diligence requirement.

With a business purchase price of $3 million or more, the lender must obtain an independent Quality of Earnings (QoE) report, in addition to the business valuation. The report must be prepared for the lender by a qualified independent financial professional.

Importantly, the QoE includes a cash proof reconciling financial results to bank activity/tax-return information. The lender then uses those findings in determining debt-service coverage. If the QoE doesn’t support the earnings used to justify the purchase price and proposed debt, the SBA loan amount has to be reduced accordingly.

Change #3: The 10% down-payment requirement did NOT disappear, but exists with subtle changes.

There has been some confusing information circulating about this.  For most loans, the minimum equity injection remains 10% of total project cost.

And importantly, it is total project cost, not merely the business purchase price. Working capital and other eligible project costs financed as part of the transaction can therefore increase the required equity.

So a $2 million business purchase with another $200,000 of working capital/transaction costs could produce a $2.2 million project.

Change #4: Seller notes can STILL count toward the buyer’s injection, but now must be on full standby.

This is another point on which some early reports about SOP 8.1 appear to have been wrong.  The familiar structure can still work:

5% buyer cash + 5% seller standby note + 90% SBA financing.

A qualifying seller note can provide up to half of the required equity injection. But to count as equity, the seller debt must be subordinated and on full standby—no principal or interest payments for the term of the 7(a) loan.  Interest will accrue but can’t be paid until the SBA loan is paid in full.

Change #5: Passive investor money is more restricted.

This one could affect search-fund and investor-backed acquisitions.

SOP 8.1 divides injection sources into Unlimited and Limited sources. Seller standby debt and capital from certain non-controlling minority investors fall into the Limited category.

All Limited sources combined may provide no more than half of the required equity injection.

That effectively means an ordinary acquisition requiring 10% equity generally needs at least 5% of project cost from unrestricted sources, such as the buyer’s own qualifying cash.

This could make some highly leveraged searcher/investor structures harder to finance.

Change#6: Sellers get a longer transition period.

This is actually favorable.

Under the current rules, a selling owner generally cannot remain as an employee, officer, director or owner after a complete change of ownership, although consulting during a transition has been permitted for up to 12 months.

SOP 8.1 extends the permissible seller consulting/transition period to as much as 24 months.

For some specialized businesses, that could be very helpful—particularly professional services, manufacturing, technical businesses and companies where customer relationships reside heavily with the seller.

Change #7: SBA has reorganized acquisitions into four categories.

Appendix 15 now formally separates change-of-ownership transactions into: Initial Acquisition → Business Expansion → Owner Buyout → ESOP/Cooperative.

That matters because the equity and underwriting requirements differ.

A conventional outside buyer acquiring a business is normally an Initial Acquisition. A company buying another company may qualify as a Business Expansion, potentially allowing the lender to reduce or eliminate the normal equity requirement if specified financial conditions are met.

This distinction is going to become more important when brokers are talking with SBA lenders about acquisition structure.

Change #8: SBA guaranty fees change.

For loans approved October 1, 2026 through September 30, 2027, long-term 7(a) upfront guaranty fees vary according to the loan amounts below:

≤ $150,000: 2% of guaranteed portion
$150,001–$700,000: 3%
$700,001–$5 million: 3.5% on the guaranteed portion through $1 million + 3.75% above $1 million.

There’s also an interesting new 0% upfront fee for loans of $700,000 or less made to certain manufacturers, food-supply-chain businesses, and businesses located in rural areas.

Summarizing, in my opinion as a business broker, these are the most important changes:

1. The 125% debt service ratio may reduce how much acquisition debt a business can support.

2. SBA loans of $3 million and over now face a substantial additional Quality of Earnings diligence requirement.

3. 10% equity remains the rule, and the familiar 5% buyer cash + 5% full-standby seller note structure is still potentially viable.

4. Sellers can potentially remain as consultants for up to 24 months, which actually gives brokers more flexibility in negotiating transition arrangements.

Should you have any questions about any of the above, please don’t hesitate to call or email William Bruce.  Our office maintains a list of preferred SBA lenders who have done a good job for our firm.

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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership.  He currently serves as president of the American Business Brokers Association.  His practice includes consulting services nationally on issues of business valuation and transfer.   With offices in Fairhope, Alabama and Baton Rouge, Louisiana, he may be reached at (251) 990-5934 (Fairhope), 225-465-5799 (Baton Rouge) or by email at Will@WilliamBruce.org.  The firm’s most recent closings can be viewed here.