SBA SOP 50 10 8.1, B.Ch2.C.2 — Underwriting
Verbatim text of SBA SOP 50 10 8.1 (with Technical Policy Updates) section B.Ch2.C.2 (Underwriting). Effective 2026-10-01 for applications received by SBA on or after that date; SOP 50 10 8 governs applications submitted through 2026-09-30. 3 provision(s) quoted from SBA's .docx.
See also
SBA lending corpus: SOP 50 10 and the active notices, with the expiry watcher.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8.1, B.Ch2.C.2 — Underwriting — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8.1 B.Ch2.C.2
2. Underwriting Note: 7(a) Small Loans may only be increased up to $350,000. If the 7(a) Small loan is increased above $350,000, it becomes a Standard 7(a) loan and must follow the requirements in Chapter 1 of this section. SBA Express loans may not exceed $500,000.
SOP 50 10 8.1 B.Ch2.C.2.a
3 sections · 10,130 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§a. Underwriting 717 ch
a. Underwriting 7
aSmall Loans3,126 ch
(a) Small Loans16 ch
(a) Small Loans
iLenders must use appropriate, prudent, and generally accepted…470 ch
i. Lenders must use appropriate, prudent, and generally accepted industry credit analysis processes and procedures consistent with those used for the Lender’s similarly-sized, non-SBA guaranteed commercial loans to determine the Applicant’s Credit History and Repayment Ability. These policies and procedures may include credit scoring models that are permitted by the Lender’s primary Federal regulator for the purpose of analyzing the credit history of the Applicant.
iiIn addition to summarizing the operating business, ownership, and…2,640 ch
ii. In addition to summarizing the operating business, ownership, and loan request, the Lender’s credit memorandum must state why credit is not available elsewhere, and include the following: a) “Credit History”: Analysis of the credit history of the Applicant (and Operating Company, if applicable), its Associates, and guarantors; i) Review and analyze the Applicant(s)’ owner(s), and Guarantor(s) personal credit reports and discuss any credit issues. (a) For loans processed under non-delegated authority, Lenders must include a copy of the credit report, dated within 90 days, with the documents submitted in E-Tran. ii) The Lender may use a scoring model that combines the Applicant and guarantors as long as its use is permitted by its primary Federal regulator, it is used for its similarly-sized, non-SBA guaranteed loans, and the model does not rely solely on consumer credit scores. iii) The results of the credit history analysis must be documented in the credit memorandum. If a scoring model is used, the results (e.g., score) must be stated in the credit memorandum along with the acceptable approval range. iv) An SBLC may use credit scoring. If it does, SBA may request that the SBLC periodically provide the credit scoring model to SBA for review. b) “Repayment Ability”: Analysis of the Applicant’s (and Operating Company, if applicable) debt service coverage, and projected earnings and assumptions (if applicable); i) The two most recent months of commercial bank activity or statements, from the time of application, for the primary operating account must be reviewed as part of the Analysis to determine whether all debts were included in the debt service coverage calculation, and statements must be retained in the loan file. ii) For 7(a) Small Loans, for purposes other than Changes of Ownership, the Applicant’s debt service coverage ratio must be equal to or greater than 1.10:1 on either a historical or projected basis. (a) Debt Service Coverage (DSC) is measured by dividing the operating cash flow (OCF) by the debt service (DS). The Lender must obtain, analyze, and retain in their files the financial statements and projections necessary to calculate the required debt service coverage ratio. (i) Operating cash flow (OCF) is defined as earnings before interest, taxes, depreciation, and amortization (EBITDA). Lenders may make additions and subtractions to OCF pursuant to the rules found in Section B, Ch. 1, Para. C.2.a.ii.d), Credit Standards (Page 119). (ii) Debt service (DS) is defined as the future required principal and interest payments on all business debt, inclusive of new SBA loan proceeds.
bThe debt service coverage ratio must be calculated using one of the following6,987 ch
(b) The debt service coverage ratio must be calculated using one of the following: (i) Last year-end financial statement (tax return, internal statement, or accountant-prepared), which must be dated and received within 120 days of year end. (ii) Last year-end statement plus interim financial statement. Lenders will calculate the debt service coverage ratio using the last year-end statement while also confirming that there has not been a decline in the financial condition of the Applicant during the interim period. Interim financial statements must be dated within 120 days of submission to SBA. (iii) 12-month projections, including supporting assumptions. When using projections, the Applicant must demonstrate a debt service coverage equal to or greater than 1.10:1 within one year of loan funding. This method is not applicable to change of ownership transactions, and the change of ownership rules for DSC must be adhered to as outlined in Appendix 15 – 7(a) Changes of Ownership. iii) Lenders must obtain and analyze the two most recent months of commercial bank activity or statements on the primary operating account and include them within their credit file. The commercial bank activity is to be used by the Lenders to confirm the commercial debts and obligations in the debt service coverage calculation. (a) If the Lender is underwriting an Applicant that is not currently in operation and has no commercial debts or obligations, they are not required to obtain two months of commercial bank activity or statements on the primary operating account. iv) If the Lender has calculated an acceptable debt service coverage ratio and reviewed two months of commercial bank activity to confirm the commercial debts and obligations, the requirement to determine the Repayment Ability is satisfied. v) If the Applicant does not meet or exceed the required debt service coverage ratio, the loan must be processed following the procedures for either Standard 7(a) or SBA Express Loans. c) Insurance – Lender must address whether life insurance or other insurance (i.e., insurance other than hazard insurance) will be required. For insurance other than hazard insurance, Lender may follow the same written policies and procedures it uses for its similarly-sized, non-SBA guaranteed commercial loans. Hazard insurance is required in accordance with Section A, Ch. 5, Para. C.1. d) Lender must address other specifics relating to the loan as applicable, including: i) A description of any proposed collateral and estimated value; ii) For loans greater than $50,000, when 50 percent or more of the loan proceeds will be used for working capital, Lender must explain in its credit memorandum why this level of working capital is necessary and appropriate for the subject business; iii) The terms of any seller financing and standby agreements; iv) Discussion of any liens, judgments, or pending litigation, including divorce proceedings; v) If the application involves a franchise (as defined by FTC), the Lender must review any credit information provided, such as the number of failed franchisees and cash flow projections provided by the franchisor. Lender must review any management agreement (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory) to determine if it results in an ineligible passive company; vi) Any debt refinancing, including justification and original purpose (copies of all notes to be refinanced must be submitted with any loan submitted to the LGPC). vii) The effect any affiliates may have on the ultimate repayment ability of the Applicant. iii. 7(a) Small Equity Requirements. a) The Lender must include in its credit analysis a detailed discussion of the required equity and its adequacy. See Ch. 6, Para. D.3.f. of this section for requirements concerning documenting and verifying equity injection. b) Minimum equity injection requirements for certain Applicants and loans: i) Start-Up Businesses – SBA considers a business to be a “start-up” for the purpose of determining equity injection requirements if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less. SBA considers an equity injection (Applicant contribution) of at least 10 percent of the total project costs (all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans) to be necessary for a Start-Up Business to operate on a sound financial basis. All 7(a) loans made to a Start-Up Business require a 10% equity injection based on the project cost; however, loans approved more than 90 days apart from each other are considered to be separate projects. ii) Changes of ownership: See Appendix 15: 7(a) Changes of Ownership c) Source of Equity Injection: The following may be considered equity injection. i) Standby Agreements - only debt that is on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA’s purposes. Lender must use SBA Form 155 or its own equivalent Standby Agreement form, and a copy of the note must be attached to the standby agreement. The standby debt may accrue interest and may be added to the standby debt and amortized after the 7(a) loan is paid in full. Standby Creditor must subordinate any lien rights in collateral securing the loan to Lender’s rights in the collateral and take no action against Borrower or any collateral securing the Standby Debt without Lender’s consent. ii) Cash that is not borrowed, whether on the business’s balance sheet or from other sources (e.g. gift). iii) Cash that comes from a personal loan where repayment can be demonstrated to come from a source other than the cash flow of the business (the salary paid to the owner by the business does not qualify). iv) Grants that do not have repayment or clawback provisions during the life of the 7(a) loan. v) Assets other than cash – An appraisal or other valuation by an independent third party is required if the valuation of the fixed assets is greater than the Net Book Value. A valuation of the fixed assets provided as part of a business valuation will not meet these requirements. vi) Eligible prepaid expenses that the Lender has verified by obtaining paid invoices, canceled checks, or bank statements. Lender must retain copies of the documentation in the loan file. (a) Expenses related to education, advisory services, or fees paid by the Applicant to an Agent are not eligible prepaid expenses and are not considered equity. vii) An equity investment not subject to an agreement to repay equity or make distributions to recover an investor’s investment prior to release of the guaranty. Note: SBA will consider any investment subject to an agreement to repay equity or make distributions to recover an investor’s investment prior to release of the guaranty (e.g., certain types of redeemable preferred stock) to be debt and not equity.
SOP 50 10 8.1 B.Ch2.C.2.b
b. Underwriting SBA Express Loans SBA has authorized SBA Express Lenders to make the credit decision without prior SBA review. i. Lenders must use appropriate, prudent, and generally accepted industry credit analysis processes and procedures (which may include credit scoring), and these procedures must be consistent with those used for the Lender’s similarly-sized, non-SBA guaranteed commercial loans. The requirements in Section A of this SOP apply to SBA Express loans. ii. Lenders must not make an SBA Express loan that would be available on reasonable commercial terms from either the Lender itself or another source without an SBA guaranty. The credit analysis must include the factors demonstrating the Applicant does not have credit available elsewhere on reasonable commercial terms from non-Federal, non-State, non-local government sources, in accordance with Section A, Ch. 1, Para. H. iii. The credit analysis must demonstrate that there is a reasonable assurance of repayment. iv. Lenders may use a business credit scoring model (such a model cannot rely solely on consumer credit scores) to assess character, reputation, and credit history of the applicant and/or repayment ability if they do so for their similarly-sized, non-SBA guaranteed commercial loans. a) The business credit scoring model may only be used in addition to the Lender’s appropriate, prudent, and generally accepted industry credit analysis and procedures. If used, the business credit scoring results must be documented in each loan file and available for SBA review. b) Lenders must validate (and document) with appropriate and accepted statistical methodologies that their business credit scoring model is predictive of loan performance, and they must provide that documentation to SBA upon request. c) Although SBLCs do not make non-SBA guaranteed loans, SBA has determined they may use credit scoring. SBLCs are required to provide credit scoring model validation to SBA on an annual basis. v. For SBA Express loans, the credit decision, including how much to factor in a past bankruptcy or whether to require an equity injection, is left to the business judgment of the Lender. Also, if the Lender requires an equity injection and, as part of its standard processes for similarly-sized, non-SBA guaranteed commercial loans verifies the equity injection, it must do so for its SBA Express loans. While the credit decision is left to the business judgment of the Lender, early loan defaults will be reviewed by SBA pursuant to SOP 50 57. vi. Lenders must also address other specifics, such as: franchise, license, dealer, or similar agreements and management agreements (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory) to determine whether the management agreement makes the business an ineligible passive business.
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Source of record: https://claudeforcompliance.com/regs/sba-sop81-b-ch2-c-2/
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