In a significant policy shift, the U.S. Small Business Administration (SBA) has announced the elimination of previous underwriting standards within its flagship 7(a) loan program. This move aims to restore financial integrity and ensure the program’s sustainability for American small businesses.
Background: The “Do What You Do” Era
Under the previous administration, the SBA implemented the “Do What You Do” underwriting approach, allowing lenders to apply their own credit standards to SBA-backed loans. While intended to expand access to capital, this policy led to a surge in loan defaults and delinquencies. By 2024, the 7(a) loan program experienced a negative cash flow of approximately $397 million—the first deficit in over a decade SBA.
Reinstating Robust Underwriting Standards
To address these issues, the SBA has introduced Standard Operating Procedure (SOP) 50 10 8, effective June 1, 2025. Key changes include:GlobeNewswire+2J Settles Law+2SBG Funding+2SBG Funding+1J Settles Law+1
- Elimination of the “Do What You Do” policy: Reverting to stricter, pre-2021 underwriting criteria.
- Restoration of lender fees: Reinstating fees to ensure the program operates at zero cost to taxpayers .GlobeNewswire+6Creating Change Mag+6Small Business Trends+6
- Mandatory tax transcript verification: Requiring verification for all loans to enhance due diligence.
- Hazard insurance requirements: Mandating insurance for loans exceeding $50,000 to mitigate risk .SBG Funding+1Biz2X+1
Implications for Small Business Owners
These changes aim to strengthen the 7(a) loan program’s financial health, ensuring its longevity and reliability for small business financing. While the stricter standards may increase the documentation burden for applicants, they also enhance the program’s credibility and reduce the likelihood of defaults.
Conclusion
The SBA’s decision to eliminate previous underwriting standards marks a pivotal step in reinforcing the integrity of the 7(a) loan program. By reinstating robust criteria and financial safeguards, the SBA is committed to supporting American small businesses while protecting taxpayer interests.
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