SBA Policy Notice 5000-879464

SBA Policy Notice 5000-879464

Effective 2026-06-01 · publisher's stamp for this provision

SBA Policy Notice TO: All SBA Employees, 7(a) Lenders, and Certified Development Companies CONTROL NO.: 5000-879464 EFFECTIVE: June 1, 2026 SUBJECT: Prior Loss Rule: Non-Controlling Ownership Update PUBLICATION: May 28, 2026 The purpose of this notice is to clarify SBA Applicant eligibility policy and advise SBA employees, Lenders, and Certified Development Companies (CDCs) of new guidance for small business borrowers for purposes of SBA 7(a) and 504 (“Agency”) loans. The Trump SBA has continued to clean up the lax “Do What You Do” underwriting policies of the Biden years to restore program integrity, while continuing to modernize its products to serve a variety of financing and ownership structures amid a dynamic business formation period. In order to support greater access to capital for small businesses, on a case-by-case basis, the SBA may ease the restrictions on an Applicant who is otherwise ineligible due to a prior loss on an Agency loan for a small, non-controlling ownership interest. Background Under current SBA loan program requirements, an Applicant is not eligible for a 7(a) or 504 loan if there is a prior loss to the Federal government. Specifically, and as set forth in 13 CFR 120.110(q), an Applicant is not eligible for an SBA business loan if the Applicant has previously defaulted on a Federal loan or federally assisted financing, resulting in a loss to the Federal government or any of its agencies or departments; or, if any other business owned, operated, or controlled by the Applicant or an Associate of the Applicant, previously defaulted on a federal loan or federally assisted financing (or guaranteed a loan which was defaulted), resulting in a loss to the Federal government or any of its agencies or departments (“Prior Loss rule”). Consequently, an Applicant whose ownership included a person or entity that owned a small non-controlling interest in a business that incurred a loss on an Agency loan would not be eligible for Agency financial assistance, notwithstanding that such person or entity had no control of, or management responsibility for, the business that caused the loss. Therefore, in supporting greater access to capital and recognizing the capital raising challenges for small businesses, while acknowledging that having a small, non-controlling equity interest in PAGE 1 of 2 EXPIRES: 6/1/27 Federal Recycling Program Printed on Recycled Paper SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete Must be accompanied by SBA Form 58 a defaulting business should not automatically preclude an entrepreneur from having future access to SBA financial assistance, SBA has determined there is good cause to use its waiver authority under 13 CFR 120.110(q) to ease the restrictions against a responsible Applicant whose owners held such interests in a business which defaulted on an Agency loan and resulted in a loss to the government. To be considered for this waiver, the aforementioned owner of the current Applicant must have: (i) held less than 20 percent of the equity of the business with the prior loss; (ii) was not a guarantor or co-borrower on the defaulted SBA loan to that business; and (iii) did not have any control over the business with the prior loss, (hereinafter, a “Non-controlling Minority Equity Investor”). Once these threshold criteria are met, SBA will evaluate the full circumstances surrounding the prior loss on a case-by-case basis, at the time of Application through the Fraud Risk Framework, using its discretion to determine whether granting the waiver is consistent with the purposes of the 7(a) and 504 programs. SBA will consider, among other factors: (i) the prior 7(a) or 504 loan(s) involving the Non-controlling Minority Equity Investor; (ii) the number and percentage of defaulted SBA loans involving the Non-controlling Minority Equity Investor; (iii) the timing of defaults (including whether a loan would have been considered an early default); and (iv) the Non-controlling Minority Equity Investor capital investment relative to the total SBA loan amounts. This waiver applies exclusively to prior losses incurred under the Agency loan programs. SBA is not modifying its policy for Applicants or owners who defaulted on non-SBA Federal loans or federally assisted financing. Additionally, this waiver does not apply to losses involving SBA Paycheck Protection Program (PPP) loans or SBA COVID-19 Economic Injury Disaster Loan (EIDL) program. Separately, an Applicant remains ineligible for an Agency loan if the Applicant, or any guarantor (excluding a Supplemental Guarantor), holds an outstanding nontax debt to the Federal Government that is delinquent (i.e., unpaid 90 days beyond the payment due date). Questions This guidance will be incorporated into the next update of SOP 50 10. Lenders and CDCs with questions on Non-controlling Minority Equity Investor Waivers and Prior Losses may submit inquires to 7aQuestions@sba.gov. Kelly Loeffler Administrator Small Business Administration PAGE 2 of 2 EXPIRES: 6/1/27 SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete Must be accompanied by SBA Form 58 Federal Recycling Program Printed on Recycled Paper

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