In 2025, lenders participating in the Small Business Administration’s (SBA) loan programs are pushing for sweeping changes to how federal small business loans are underwritten, approved, and priced. Specifically, many are urging the SBA to reinstate lender fees and tighten credit standards—steps they say are essential for maintaining the financial health of the SBA’s flagship 7(a) loan program.
While lenders argue that such reforms are needed to reduce defaults and protect taxpayer-backed guarantees, critics warn that these changes could make it harder for small businesses—especially those in underserved communities—to access critical capital.
Let’s explore what’s driving this push from lenders, what changes are already underway, and what small business owners should expect going forward.
Background: The SBA 7(a) Program and Rising Lender Concerns
The SBA’s 7(a) loan program is the federal government’s most popular small business financing vehicle, offering up to $5 million (or $6.5 million as of 2025) in government-guaranteed loans through private sector lenders. In FY2024, the program saw a surge in both volume and demand—but not without complications.
Following relaxed underwriting policies introduced in 2023—particularly the “Do What You Do” policy that allowed lenders to apply their own credit standards—default rates began to rise sharply. By early 2025, lenders reported growing unease over financial exposure and inconsistent loan quality.
According to a Bankers Online report, lenders raised alarms about “fee erosion and risk accumulation” and called for a return to traditional SBA underwriting rules and cost-sharing models.
Key Changes Already Implemented in 2025
In response to lender feedback, the SBA has already begun tightening its lending framework. Here are the most significant changes now in effect:
1. Return to Traditional Underwriting Standards
In March 2025, the SBA formally repealed the 2023-era “Do What You Do” guidance and reinstated historical SOP 50 10 underwriting standards. These require lenders to follow SBA-specific eligibility criteria and due diligence practices, particularly for:
- Business valuation
- Cash flow analysis
- Franchise and affiliate disclosure
- Collateral assessment
As noted in SBG Funding’s 2025 guidelines breakdown, lenders are now expected to document borrower repayment ability with greater rigor.
2. Reinstatement of Lender and Guarantee Fees
To reduce taxpayer liability and ensure program sustainability, the SBA has reintroduced several fees that had been temporarily waived. As of FY2025:
- 7(a) loans over $1 million are again subject to upfront borrower and lender guarantee fees.
- Loans under $1 million remain fee-free—a move designed to preserve access to capital for very small businesses.
This change is detailed in the SBA’s official FY2025 lender fee memo.
3. New Fraud Prevention Protocols
The SBA has also implemented age-based flags and enhanced identity verification through its E-Tran system. For instance, loan applications submitted for individuals under 18 or over 120 now trigger fraud alerts, requiring further review before approval.
These changes come after investigations uncovered identity and documentation fraud in previous cycles of emergency lending.
Why Lenders Are Pushing for These Reforms
Lenders say they are not trying to restrict access to credit—but rather ensure that SBA-backed loans remain reliable, responsible, and sustainable for the long haul.
Key reasons include:
- Protecting taxpayer funds: SBA loans are government-backed, meaning defaults result in public liabilities.
- Curbing risky behavior: Lenders argue that looser underwriting rules led to “shotgun lending” in 2023–2024, with too many loans extended to unqualified borrowers.
- Ensuring long-term program health: As one NAGGL statement noted, consistent standards ensure that SBA loans remain viable across economic cycles.
What It Means for Borrowers
While these reforms aim to improve program integrity, they come with real implications for small business owners, especially those who are new, undercapitalized, or credit-challenged.
1. Higher Barriers to Approval
With stricter underwriting back in place, applicants must now submit:
- Full business and personal financial statements
- Clear documentation of ownership
- Two or more years of business operating history (in most cases)
Startups and solo entrepreneurs may find it harder to qualify without strong credit or substantial collateral.
2. Higher Costs for Larger Loans
Borrowers seeking loans over $1 million will now face higher upfront fees, which could affect loan affordability and discourage expansion planning.
3. More Reliance on Loan Packaging Specialists
Given the technical nature of SBA underwriting, more borrowers are now turning to consultants or SBA-preferred lenders to navigate the complex application process.
4. Greater Scrutiny of Loan Purpose
Borrowers must now clearly justify how the loan will be used, with extra attention paid to working capital, real estate, or change-of-ownership loans.
Is There Still Room for Hope?
Yes. Despite the tightening climate, the SBA continues to support small-dollar lending and has made efforts to preserve affordability for early-stage entrepreneurs and Main Street businesses.
For FY2025:
- Loans under $1 million remain fee-exempt.
- SBA microloans (under $50,000) are available through non-bank intermediaries.
- Community Advantage and CDFI programs offer flexible capital with looser credit standards.
For more on how to navigate these options, the SBA’s Loan Program Overview is a great place to start.
Tips for Borrowers in the New Lending Environment
To succeed in this evolving landscape, borrowers should:
✅ Prepare Strong Financials
Keep current P&L statements, balance sheets, and tax returns up to date.
✅ Understand Your Credit Profile
Aim for a business credit score of 150+ and a personal FICO score above 680.
✅ Be Clear About Loan Use
Explain exactly how funds will be used, with supporting documentation.
✅ Work With Experienced SBA Lenders
Preferred lenders are often more efficient and knowledgeable about SOP changes.
Conclusion
As the SBA retools its loan programs in response to lender pressure, small business owners are entering a more rigorous but more stable lending environment. While higher fees and tougher underwriting standards may seem like obstacles, they are also designed to safeguard the long-term viability of SBA programs and ensure responsible lending practices.
The best way forward? Be informed, be prepared, and work with lending partners who understand the latest rules—and your business goals.
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