The U.S. Small Business Administration (SBA) released SOP 50 10 8 on April 22, 2025, with an effective date of June 1, 2025. It introduced new policy changes and signaled a return to more traditional, prudent lending practices, aligning with current executive orders and policy priorities.
However, on May 29, 2025, the SBA issued an updated version—SOP 50 10 8 with Technical Updates—which supersedes the April release. The earlier version should no longer be used.
While the updated SOP primarily focuses on changes to the 7(a) program, it also includes several important updates to the 504 loan program. Below, we have outlined the most significant changes to the 504 program, along with a summary of the technical revisions included in the SBA’s latest memo to help you stay informed and prepared.
- Reintroduction of the SBA Franchise Directory: The SBA Franchise Directory is being reinstated for loans approved on or after June 1, 2025. Franchisors and Distributors will have until July 31, 2025, to sign a Franchisor or Distributor Certification. Temporary procedures are in effect through July 31st. On Aug. 1, any franchisor or distributor who has not signed a new certification will be removed from the Directory. The SBA has created the SBA Franchise Directory, which includes all franchise and other brands reviewed by the SBA that are eligible for SBA financial assistance. The Directory will:
- Be maintained on the SBA’s website and can be found by clicking here.
- Determines whether a brand meets the Federal Trade Commission (FTC) definition of a franchise
- Evaluates whether the brand’s business model is eligible under SBA regulations
- Assigns an SBA Franchise Identifier Code to brands that meet the FTC definition
- Includes notes for each brand, which may contain additional instructions and indicate eligibility for specific SBA loan programs such as PPP and EIDL
- Environmental Review Streamlined: The SBA has clarified and simplified the environmental review process regarding 504 loans. If the report concludes that a property has no contamination, the CDC can now authorize approval of the report and certify in E-Tran that the property complies with all SBA environmental requirements, retaining the report in the loan file. No further SBA approval is required in such cases. If contamination is found, the CDC must follow all recommendations from the Environmental Professional (e.g., conduct a Phase II assessment) and submit documentation for SBA review and approval before disbursement.
- Energy Public Policy Projects: As of April 30, 2024, the SBA has removed the previous $16.5 million cap on Energy Public Policy Projects under the 504 Loan Program. This change allows for greater financing flexibility for eligible energy-related projects, while maintaining the $5.5 million per-project limit and ensuring such loans do not count against the $5 million cap for other 504 projects.
- Clarification on Eligibility for Businesses Under Management Agreements: The updated SOP provides clearer guidelines regarding the eligibility of businesses operating under management agreements, ensuring that such arrangements meet SBA requirements. The SBA wants to ensure that business owners have “meaningful oversight”. Meaningful oversight by the applicant means involvement in the decisions made concerning the operation of the business, which includes a management agreement that provides for the Applicant to do all of the following:
- Approve the annual operating budget;
- Approve any capital expenditures or operating
expenses over a significant dollar threshold; - Have control over the bank accounts; and
- Have oversight over the employees operating the
business (who must be employees of the Applicant).
- Improvements to Leased Space: When a borrower is leasing space, and either (1) $500,000 or 30% of the loan proceeds (whichever is less) will be used for leasehold improvements, or (2) $500,000 or 30% of the collateral (whichever is less) consists of leasehold improvements, fixtures, machinery, or equipment attached to leased real estate, the lender must:
- Obtain a copy of the written lease,
- Ensure the lease term is at least as long as the loan maturity,
- Secure an assignment of lease and landlord’s waiver, and
- Document the loan file if a landlord’s waiver is not obtained.
- Passive Business Clarification: Shopping centers, office suites, salon suites, ghost kitchens, and similar business models that lease space are not eligible unless:
- The revenue is earned through membership dues (not rent), and
- The business’s customers do not have an assigned space, and
- The business is responsible for the necessary equipment
- Citizenship and Ownership Requirements: The revised guidelines emphasize stringent citizenship and ownership criteria, requiring the company to be 100% owned by individuals who are U.S. Citizens, U.S. nationals, or a (unconditional) lawful permanent resident. There is also a six-month lookback period to ensure ownership has been in place for that amount of time. Additionally, the Borrower must certify that they are not employing illegal aliens.
- Updates to “Credit Elsewhere”: Under SOP 50 10 8, the SBA has reinstated requirements for the “credit elsewhere” test, requiring lenders to provide a detailed narrative and supporting documentation to show that a business, and its owners cannot obtain financing on reasonable terms without SBA assistance, reversing the more lenient standards from the previous SOP. It is important to note that owners may have reasonable funds set aside for potential future medical expenses, educational expenses (including those of the business owner’s children), and retirement needs. Additionally, the Applicant’s business can have sufficient funds for capital expenses over the next 24 months and for working capital.
- Ineligible Businesses: The new SOP clarifies that a business will be ineligible if it has a prior loss or delinquency on federal debt. However, if the business is operating under an approved catch-up plan, it is not considered delinquent.
Technical Updates
On May 29, 2025, SBA issues Tech Memo 5000-866746, which can be found by clicking here. Our National Association, NADCO, did a great job of highlighting the changes. Please read below.
Section C – 504 Loan Program Specific Requirements – no updates other than those mentioned in the “Additional Updates Throughout the SOP” section below
Section B – 7(a) Loan Program Specific Requirements – numerous updates, see Notice and SOP for details
Section A – Core Requirements for all 504 and 7(a) Loans – multiple updates, including –
- Located in the United States (page 14) – added language that Applicant businesses must be created, organized, or incorporated in the United States, its territories, or possessions.
- Prior Loss to the Government (page 25) and Delinquent Federal Debt (page 26) – clarified that SBA Lenders (including CDCs) must check CAIVRS prior to submitting any application to SBA or approving any application under any delegated authority. SBA Lenders (including CDCs) must retain documentation of the CAIVRS check in the loan file.
- Businesses Owned by Non-US Citizens (page 27) – added clarifying language –
- Entity owners (whether direct or indirect) must be created, organized, or incorporated in the United States, its territories, or possessions.
- All direct and indirect owners and guarantors must have a primary residence in the United States, its territories, or possessions.
- When an Applicant business is owned by a non-citizen US National, the SBA Lender must document in the loan file that the SBA Lender has reviewed evidence of the person’s status as a US National (e.g., birth certificate or passport) and must enter the person’s Social Security Number on the application and into ETRAN.
- When the applicant business has other businesses that report their taxes on the applicant business’s tax returns, all the businesses on the tax returns are subject to these requirements. However, affiliate businesses and partially owned subsidiaries that do not report their taxes on the Applicant Business’s tax returns are not subject to these requirements.
- Credit Not Available Elsewhere Including the Liquidity of Owners of 20% or more and the Applicant Itself – page 38 – SBA added language permitting the Applicant business to have reasonable funds for capital expenses for the next 24 months and for working capital.
- OFAC Sanctions List – page 40 – moved existing text on OFAC to this new paragraph and included additional instructions. For CDCs and 504 loans, SBA clarified that the CDC can rely on the Third Party Lender to comply with OFAC requirements provided the Third Party Lender is regulated by a Federal functional regulator and submits annual certifications to the CDC that it will comply with OFAC requirements. CDC can perform its own verification of the SBA Applicant against the OFAC Sanctions List – the CDC must perform its own search of the OFAC sanctions list if the Third Party Lender has not submitted the requisite annual certification to the CDC.
- Employee Stock Ownership Plans (ESOPs) – page 47-48 – clarified that when an SBA loan is used to purchase a business owned by an ESOP for a complete change of ownership where the ESOP is being dissolved, the employees (owners of the ESOP), except for illegal aliens, may remain as employees of the business despite other provisions in the SOP to the contrary.
- Excess Land – page 53 – clarified that land held for future development and the purchase of excess land not for immediate use as part of the project are not eligible for SBA financing.
- C-PACE – page 54 – clarified that whether at loan origination or as a servicing action, SBA Lenders may not permit a C-PACE loan to be made on a property that has or will have a 504 or 7(a) loan.
- Out-of-Pocket Expenses – page 69 – clarified that fees charged for legal services must be for services performed by a licensed attorney or someone working under the licensed attorney’s direct supervision, regardless of whether the attorney is in-house or outside counsel.
- IRS Tax Transcript / Verification of Financial Data – pages 91-93 –
- Added clarifying language for SBA Express and Export Express Programs
- Added a solution for when the IRS returns a “no records found” message allowing the SBA Lender to proceed with loan closing if both of the following have been obtained: (1) Proof of filing the required tax return, either through evidence of an IRS e-file submission or a paper return that has been stamped as received by the IRS, and (2) Proof of payment or refund that reconciles with the stated liability on the tax return. If the business tax liability is passed through to individual guarantors, the SBA Lender may use the IRS tax transcripts for the individuals to verify their payment of taxes.
- Historic Properties – page 99 – clarified that each loan application must be individually reviewed for compliance with section 106 of the National Historic Preservation Act. For example, if a 7(a) loan is made shortly after a 504 loan, the 7(a) loan must undergo an individual review.
- Environmental Policies and Procedures – page 102 and in various appendices –
- Clarified longstanding guidance that environmental reports (including lead risk assessments and lead in drinking water tests) must be dated within one year of the date of issuance of the SBA loan number.
- Incorporated recent procedural changes for SBA Lenders (including CDCs) to review and certify in ETRAN when the Property is not Contaminated.
- Incorporated new email boxes associated with recent procedural changes for processing environmental reports.
Additional Updates Throughout the SOP –
- Disclosure of Applicant Ownership – clarified that SBA Lenders are now required to enter into ETRAN 100% of direct and indirect owners of the Applicant business. This includes the OC(s) and any EPC.
- Commercial Loan Servicing Centers (CLSCs) – changed references to reflect the recently announced unified intake platform at Fresno CLSC with the email address FSC.Servicing@sba.gov
- “Search Funding” – added language that “search funding” is not eligible for the 7(a) Loan Program. See the notice for complete details.
- Minor Edits for Clarity – several minor edits for clarity throughout the SOP.
Additionally, while this version is primarily focused on the 7(a) program, we’ve been informed that SOP 50 10 8.1 is already in development and will include more substantial updates to the 504 Loan Program.
To download SOP 50 10 8, click here. In the meantime, if you have any questions, we’re here to help!