What You Can’t Do Under New SBA Guidelines
/What the End of SOP 50 10 7.1 Means for Buyers and Brokers
With the rollout of the new SBA SOP effective this week, several longstanding financing strategies have been officially phased out. SOP 50 10 7.1 is out, and with it, key deal-making tools that small business buyers, brokers, and lenders have leaned on to close transactions for years. These updates signal a stricter and more conservative lending environment, with the SBA focused on reducing risk and increasing transparency.
Below are five major changes you need to know if you're navigating an acquisition, funding a startup, or advising clients through SBA 7(a) financing.
1. Goodbye to MCA or Factoring Refinance
One of the most immediate impacts is the SBA’s decision to bar refinancing of merchant cash advances (MCAs) or factoring arrangements. These forms of high-interest, short-term financing were previously refinanced through SBA 7(a) loans to give small business owners some breathing room.
What it means: Borrowers burdened by MCA or factoring debt are now out of luck when it comes to SBA refinancing. This eliminates a major use case for SBA loans—reducing the appeal for turnaround deals and raising the bar for businesses that need debt restructuring.
If a business has active MCA obligations, they must be paid off outside of SBA financing, or buyers should look for alternative funding partners.
2. No More Seller Rollover Equity in Acquisitions
It’s been common practice in the acquisition space for sellers to retain a minority equity stake as part of the deal. This arrangement kept the seller involved in the business and provided flexibility in structuring the transaction. But the new SOP makes it clear: seller rollover equity no longer counts toward the required buyer equity injection.
What it means: Buyers now need to bring true, unencumbered cash or other acceptable equity forms to the table. Even if a seller is willing to stay on as a partial owner, their stake won’t help satisfy the 10% minimum equity requirement.
This could slow the pace of small business acquisitions, especially for buyers who previously relied on this strategy to reduce upfront capital requirements.
3. Foreign Equity Is Out
Non-U.S. citizens and individuals without a green card are no longer eligible to contribute equity in SBA-backed deals. This change reflects the SBA’s focus on domestic economic support and stricter oversight of ownership and control.
What it means: International investors are effectively locked out of equity participation in SBA-financed businesses unless they have lawful permanent residency.
This limits access to outside capital and may complicate deals with foreign partnerships or co-investors, especially in industries with global reach or expat founders.
4. Seller Notes Must Be Truly Secondary
Another commonly used strategy involved seller financing. Buyers often used seller notes—especially those structured on full standby for 24 months—to satisfy the equity requirement. Under the old rules, this was acceptable. Not anymore.
What it means: Buyers must now inject at least 10% in true equity. Seller notes can still be used as part of the financing stack, but they can’t count toward the buyer’s equity contribution unless subordinated under specific new guidance.
This change increases the cash-on-hand requirement, making it harder for cash-light buyers to qualify. It's a shift from creative structuring to more traditional capital expectations.
5. Welcome to a New Era of SBA Deal Structuring
These changes mark a departure from the flexible, borrower-friendly environment many entrepreneurs and brokers operated in for years. The SBA is now doubling down on due diligence, liquidity, and traceable ownership. While these updates are intended to reduce risk and improve loan performance, they also mean fewer workarounds and stricter qualification standards.
You’ll need more upfront capital, tighter documentation, and a more compliant ownership structure to get approved. On the flip side, well-prepared buyers may face less competition in a more selective landscape.
Navigating What’s Next
The SBA’s new direction calls for new tools and better preparation. At Rapid Business Plans, we help acquisition entrepreneurs, brokers, and operators navigate the evolving SBA lending landscape. From building compliant business plans to advising on capital stack design, our team ensures you’re aligned with the latest SOPs.
See how we can support your next SBA-funded deal with the confidence and clarity lenders demand.
