Change of ownership is the biggest slice of SBA lending. SBA just made it harder to finance a change of ownership.
That’s the tension at the heart of SOP 50 10 8.1, SBA’s newly released rulebook, and it’s going to shape how your franchisees get funded starting this fall.
The New SBA SOP takes effect October 1. ⏰
If there is a deal in the works right now, the date matters. SOP 50 10 8.1 applies to applications that receive an SBA loan number on or after October 1. Anything submitted through September 30 stays under the current SOP.
Here’s the short version: bigger deals, more first-time owners, and a portfolio under pressure have pushed SBA to demand more diligence at every step. Some lenders are taking it in stride. Others are struggling. Either way, the brands whose franchisees depend on SBA financing need to understand what changed.
Why SBA Made These Changes
SBA framed the update around a few connected realities:
- Change of ownership is now the largest, and fastest-growing segment of SBA lending.
- It’s also where a lot of the portfolio risk sits, because a business changing hands means an unproven new owner stepping into a P&L someone else built.
- The decoupling of the 7(a) and 504 programs has pushed lenders into larger, more complex, middle-market deals — many above $5 million.
- And underneath it all, the SBA portfolio has continued to degrade. An official responsible for overseeing portfolio risk at a recent lender conference was candid that recent tightening hasn’t yet turned the trend around.
The new SOP also consolidates the nine separate notices SBA issued since the last SOP into a single framework.
What’s Actually New in the SOP
- More guidance on credit memorandums. SBA wants lenders to be more careful and more thorough in how they document credit decisions.
- SBA’s new SOP 50 10 8.1 sets debt service coverage at 1.25 to 1 for an initial acquisition, 1.15 for a business expansion, and 1.25 for an owner buyout or an ESOP, measured on the last fiscal year or the average of the last two, but many lenders will require a 1.5 debt service.
- Business expansions have required equity injection. As someone shared…. the free ride on expansion deals is over. Under the old SBA rules, an acquisition that met the business expansion test required no equity injection at all. Structured right, it was effectively 100% financed.
SOP 50 10 8.1 starts every expansion at a 10% injection. A lender may reduce or eliminate it, but only on a documented finding that the franchisee has the liquidity and working capital to sustain operations after close, and only if the franchisee’s last balance sheet does not show negative net worth. If they do eliminate it, no permanent working capital can go into this or any other 7(a) term loan for 90 days - Quality-of-earnings (Q of E) reports on change-of-ownership deals over $3million. This is the change lenders are feeling most. A Q of E isn’t a box to check — it’s meant to establish that the business will actually succeed under new ownership. It also isn’t cheap: figure a $15,000 minimum, which reshapes the economics of smaller acquisition deals.
- Buyer-ordered Quality of Earnings reports will be accepted, provided the lender has its vendor management company review the QoE and determine that the scope, testing, and results meet both SBA and lender requirements.
- Under the new SOP, ordering the QoE early will be crucial, especially for transactions with tight closing timelines. Waiting for loan approval before starting the QoE could create significant delays. Many lenders may even require the QoE to be performed concurrently with underwriting, particularly when a deal relies heavily on add-backs.
- Longer timeline for sellers to be involved in the business. SBA has seen deals where the selling partner stays on, the business runs fine, then declines and fails once they leave — because the new owner never truly took the reins. The updated SOP limits how long a seller can stay involved up to 24 months and pushes for a clean transition.
- Seller debt can count as equity but it needs to be on standby for the life of the loan. What seller wants to wait to get paid for 10-years?
At every conference, lenders ask about Legal Permanent Residence.
One outside counsel for SBA lenders said she deals with this issue EVERY single day. There cannot be one person on the loan, guaranteeing the business, involved in any capacity of ownership if they are a legal permanent resident.
Transfer the ownership to the kids could be feasible, but not if the kids are 18 years old. They are still looking at the risk of the business. At this point, SBA was pretty firm. We’ve addressed this and it won’t change. It’s an executive order.
Big picture, for the lenders who already underwrote conservatively, much of this is familiar. For others, it’s a change in the way they do business and they were complaining.
“It’s HARD” — What We Heard from Lenders
FRANdata was on the ground at the America East Lender conference as SBA rolled this out, and the word that came up again and again was hard. Credits are more challenging. Deals are more complicated. Internal conversations are running longer. Good credits are being fought over — sometimes won at a loss to the lender. That said, deals are still getting done. Lenders are adjusting to the new realities, not backing away from them.
A Second Big Development: SBA Wants to Redefine “Small”
Alongside the SOP, SBA published a proposed rule in the Federal Register (August 20) that would significantly expand its small-business size standards — potentially the most consequential eligibility change in years.
A few highlights:
- The proposal would add roughly 114,500 businesses to the small-business population (from 6.34 million to 6.46 million).
- It consolidates nearly 1,000 separate size standards down to 338, and removes the current ceilings of $47 million in receipts and 1,500 employees — the proposed methodology has no maximum.
- Several franchise-relevant categories would jump.
- Full-service restaurants would move from an $11.5M receipts standard to an 850-employee standard
- Limited-service restaurants (today at $13.5M) would shift to that same test — a change SBA estimates brings nearly 5,000 more restaurant businesses into small-business status
- Hotels and motels would move to $503M in receipts;
- Gas stations with convenience stores to 1,150 employees;
- Electrical contractors to 550 employees
- Child-care services to $194M in receipts
- One thing that does not change: the alternative size standard. An applicant over its industry standard still qualifies for 7(a)/504 if it and its affiliates have tangible net worth under $20M and average net income under $6.5M over the prior two years.
For franchisors, this is worth watching closely: more of your multi-unit operators — and larger concepts overall — could become SBA-eligible.
Public comments are open through September 21, 2026 if you’d like to weigh in click here
What This Means for You and Your Franchisees
SOP 50 10 8.1 applies to loans that receive an SBA loan number on or after October 1. Between now and then, it’s worth setting expectations with any franchisees financing acquisitions, resales, or partner buyouts: plan for more documentation, a quality-of-earnings requirement on change-of-ownership deals, longer underwriting timelines, and lenders who are being more selective. The upside is real too — franchisees are still getting funded, and a broader definition of “small” may open SBA financing to operators and concepts that didn’t previously qualify.
If it would help to talk through how these changes affect your system specifically, Contact us by clicking on the button below.