During the most recent SBA Quarterly Call—attended by over 3,700 lending and franchise partners—U.S. Senator Kelly Loeffler and Associate Administrator Thomas Kimsey outlined the policy rationale and urgency behind SOP 50 10 8.
SBA’s 7(a) program, now in its 70th year, is experiencing a rapid tra
nsformation. For the first time in over a decade, the 7(a) program has lost its zero-subsidy status, creating a $390 million shortfall in cash flow. In response, SBA is restoring lender fees and reemphasizing risk-based underwriting. These changes are designed to strengthen the program and make it sustainable for the millions of small businesses it supports.
The SBA’s long-awaited SOP 50 10 8 has arrived—and with it comes a sweeping reset of how small business lending will operate moving forward. For franchisors, this is more than just a regulatory update. It’s a critical moment to evaluate your SBA readiness, understand your obligations, and shore up your brand’s ability to support franchisees who rely on SBA financing. Here are some key highlights:
- Reversal of “Do What You Do”: SBA has officially reversed the 2023-era policy that gave lenders wide discretion. SOP 50 10 8 is designed to reestablish consistency and responsible underwriting standards.
- Franchise Directory Returns: The SBA announced the return of the Franchise Directory, effective June 1, 2025, reaffirming that only listed brands will be eligible for SBA lending.
- 8 Notices Released: SBA has issued 8 formal notices so far leading up to the SOP rollout. The SOP will become fully effective June 1, 2025.
- Loan Volume Trends: The 7(a) program is growing rapidly—loan volume is up 41%, and manufacturing loans are up 71% year over year.
- Increased Purchase Rates: Due to loosened rules in recent years, SBA is now seeing increased loan defaults and purchases, particularly tied to no-collateral/no-rules underwriting.
- Loan Size Flexibility in Discussion: SBA is exploring potential increases in maximum loan amounts, but such a move would require congressional approval.
- Working Capital Caution: SBA expressed concern about high use of proceeds for working capital, noting that loans with over 50% working capital tend to have the highest default rates.
- Wire Transfer & Fraud Concerns: SBA flagged incidents where loan proceeds were diverted due to hacking. Lenders are being encouraged to secure disbursements and protect borrowers.
- Delegated Processing Restrictions: Delegated lenders may no longer switch to non-delegated submission for loans they cannot approve. All such loans must be fully processed under their delegated authority.
- Franchisee Eligibility Focus: SBA reaffirmed that they—not the lender—are responsible for determining applicant eligibility, especially in franchise situations.
- Red Tape Hotline: SBA introduced a “Red Tape Hotline” to receive direct feedback from small business owners about regulatory burdens and concerns.
- New Credit Score Thresholds: For loans under $350,000, the minimum acceptable SBSS score has been raised to 165. Below that, applicants must undergo full credit analysis.
- Refinance Restrictions: Same Institution Debt (SID) can only be refinanced under hardship exceptions and requires non-delegated processing.
- Citizenship & Guarantor Rules:
- Illegal aliens and visa holders may not be owners, employees, or guarantors.
- Limited guarantors are only allowed when securing jointly held required collateral (e.g., a home), and only in very specific cases.
- 6-month lookback for associates: Any individual associated with an ineligible business must have fully disassociated at least 6 months prior to loan application.
- Ownership Change Structuring Warnings:
- Multi-step “NewCo” transactions are ineligible.
- Seller notes must be on full standby for the loan term and may only count toward 5% of the equity injection.
- Partial ownership sellers must guarantee the loan for 2 years, regardless of retained equity.
- Franchise Directory Enforcement: There was a clear emphasis that only brands listed on the SBA Directory will qualify for SBA financing moving forward. The SBA is committed to enforcement, and the policy shift is fully underway.
The SBA’s new SOP 50 10 8 is more than a policy revision—it represents a full reset of the SBA lending environment. We’ve reviewed the updates and broken down what each change means for your brand.
7(a) LGPC Metrics
“7(a) LGPC Metrics” outlined the current loan processing volumes and average turnaround times by loan type. Small loan applications take around five business days, while standard loans can take up to sixteen.
What this means for franchisors: Expect delays in franchisee funding, especially for larger projects. Build these lead times into your development planning and onboarding process.
Franchises – Directory Reinstated
The SBA’s reinstatement of the Franchise Directory is a major structural change. All franchise brands must now be listed on the Directory to remain eligible for SBA financing—reversing the “lender discretion” era of the past two years.
What this means for franchisors: If you’re not on the Directory, your franchisees are ineligible for SBA loans. This could stall growth and disadvantage your brand against listed competitors.
Adding a Franchise to the Directory
To add a brand to the Directory, franchisors must follow a specific submission process, including sending their FDD and franchise agreements to SBA for review. Upon approval, SBA issues a certification for signature.
What this means for franchisors: The accuracy and structure of your FDD now directly impact SBA access. Mistakes, outdated documents, or overreaching clauses could prevent certification and cost you deals.
Franchisor Certifications
The new Franchisor Certification is now mandatory for all brands listed prior to May 11, 2023. You must complete and sign this form by July 31, 2025, or your brand will be removed from the Directory.
What this means for franchisors: This is a hard deadline. If you miss it, your brand’s SBA eligibility disappears overnight. Start now to avoid being caught in the processing bottleneck.
Passive Business Clarification
The SOP also clarified passive business rules, especially targeting shared-space models like salon suites, coworking kitchens, or studios. These models must avoid dedicated space assignments and generate revenue primarily from membership.
What this means for franchisors: If your model resembles these formats, you’ll need to prove that franchisees are actively managing a business—not just subleasing space.
Franchise Directory Returns – SOP 50 10 8
Another slide reaffirmed the SOP’s effective date and noted that interim procedures will only remain in place until July 31. After that, the Directory and Certification requirements are fully in force.
What this means for franchisors: Don’t wait until July to act. Thousands of brands will be submitting certifications, and delays could cause temporary delisting.
Ineligible Businesses
The SBA further emphasized that certain industries and ownership types remain off-limits. This includes marijuana/CBD-related businesses and any businesses with incarcerated or otherwise ineligible associates.
What this means for franchisors: Franchises in sensitive categories should review both their operating models and franchisee screening processes to avoid compliance risks.
Leased Space – Improvements
If loan proceeds or collateral involve leasehold improvements exceeding $500K or 30% of project cost, SBA requires additional documents such as lease agreements and landlord waivers.
What this means for franchisors: High-buildout franchises should coach their candidates early about lease documentation requirements to keep the lending timeline on track.
Guaranties
Changes to guaranty rules now require that all direct or indirect 20%+ owners provide personal guarantees. Substituting guaranty obligations is no longer permitted.
What this means for franchisors: Prepare franchisees for broader personal financial disclosure—especially in complex ownership or partnership structures.
Top Screen-Out Reasons
One slide outlined the top reasons SBA loans are screened out: poor or missing financials, incomplete credit memos, and improper documentation for ownership changes and refinances.
What this means for franchisors: You can help reduce risk of rejection by supporting your franchisees with vetted financial templates and deal structure best practices.
Equity Injection Requirements
The SOP reinstates the 10% equity injection for all startups and complete changes of ownership. Seller notes must be on full standby and can only satisfy up to 5% of the total requirement.
What this means for franchisors: Franchisees will need more capital up front. Seller-financed deals won’t meet the new bar unless tightly structured.
Complete Changes of Ownership
Seller notes must be placed on full standby for the entire loan term in order to be counted toward the required equity. This effectively caps seller financing’s contribution to a small portion of the total injection.
What this means for franchisors: Brands that rely heavily on seller notes to facilitate transfers will need to revise those strategies or risk disqualification.
Partial Changes of Ownership
In partial ownership changes, sellers who retain any equity must personally guarantee the loan. The structure must also meet SBA’s 9:1 debt-to-worth ratio or the buyer must inject equity.
What this means for franchisors: Internal partner buyouts and shared equity deals must be approached with caution. Franchisees should consult early with SBA-aligned advisors.
Multi-Step Changes of Ownership
Multi-step ownership transfers (e.g., asset transfers into a “NewCo”) are no longer permitted. SBA now requires clear, single-step ownership changes to qualify.
What this means for franchisors: Avoid complicated transfers or phased-in deals—they’ll likely be ruled ineligible.
Collateral Requirements
Collateral standards have been tightened. Lenders are expected to take all available collateral, including personal real estate if the business assets fall short.
What this means for franchisors: Franchisees should be informed upfront about collateral expectations and risks—especially for higher-dollar loans.
Hazard Insurance Requirement
Hazard insurance is now required for all projects exceeding $50,000 in collateralized value. Previously, the threshold was $500,000.
What this means for franchisors: Insurance needs to be in place much earlier. Your onboarding process should reflect this new requirement.
Refinancing Same Institution Debt (SID)
Franchisees who wish to refinance same-institution debt must meet stringent hardship criteria and go through non-delegated SBA processing.
What this means for franchisors: If a candidate is refinancing with their original lender, expect extra scrutiny. Avoid assuming it’s a simple transaction.
Use of Proceeds – Working Capital
The SBA flagged loans using over 50% of proceeds for working capital as having the highest default rate. These will now be more closely reviewed.
What this means for franchisors: Encourage franchisees to structure loans around equipment, buildout, or acquisition—not just operating cash.
Management Agreements
Franchisees using management agreements must still retain control over day-to-day operations. Any third-party involvement must be reviewed in the FDD.
What this means for franchisors: Absentee or investor-driven models must be structured carefully to preserve operational control and comply with SBA definitions.
Debt Refinance Restrictions
Finally, the SBA now prohibits using 7(a) funds to refinance merchant cash advances or factoring lines.
What this means for franchisors: Candidates using short-term, high-cost loans may disqualify themselves from SBA funding. Financial education is key.
How FRANdata and the Franchise Registry Can Help
At FRANdata, we’ve spent decades helping franchisors navigate complex SBA requirements. As the administrator of the Franchise Registry, we’re working hand-in-hand with the SBA and lenders to ensure smooth transitions for our members.
Franchise Registry members benefit from:
- Pre-submission vetting of FDDs and business models
- Franchisor Certification support and preparation
- Mass submissions to SBA so you’re not caught in the July logjam
- Lender relationship management and risk mitigation strategies if eligibility concerns arise
With 8,000+ brands expected to submit certifications before the deadline, delays are inevitable. Being a Franchise Registry member ensures you have the expertise and access you need to keep SBA funding pathways open for your franchisees.
This isn’t just about paperwork—it’s about maintaining a competitive edge in a changing lending environment. If your franchisees can’t get funded, they can’t open. We’re here to make sure that doesn’t happen.
Questions? Email us at franchiseregistry@frandata.com. We’re ready to help.