Major SBA Lending Changes Taking Effect June 1, 2025

Justin Marti
18 hours ago
3 min read

What Practice Owners Need to Know

If you’re planning to buy, sell, or expand your practice using Small Business Administration (SBA) financing, important changes are coming that could significantly impact your deal structure. Starting June 1, 2025, the SBA is implementing new rules under its SOP 50 10 8 guidelines that tighten credit standards and shift how transactions must be structured, particularly in the small business and healthcare sectors. We outline the upcoming SBA lending changes in the article below.

Key SBA Lending Changes Happening June 1, 2025:

Stricter Loan Requirements

Lenders must follow more stringent SBA underwriting guidelines and can no longer rely on flexible internal lending standards.
Borrowers must now inject a minimum of 10% equity (cash) into the deal. This significantly affects deal structure and buying power, as healthcare lenders often finance 100% (or more) of the transaction.
Tax transcript verification is now required.
Hazard insurance must be put in place for loans over $50,000.

Ownership Limitations

Businesses must be 100% owned by U.S. citizens or lawful permanent residents.
LLCs or other business entities may still be borrowers, as long as all stakeholders of those entities meet the U.S. citizenship requirement.

Franchise Requirements Are Back

Prior to 2023, the SBA required franchised businesses to be listed in the Franchise Directory (essentially, a list of pre-approved franchises able to utilize SBA funding). That requirement was removed in 2023, but has once again returned.
If you're a hopeful franchisee, you’ll need to confirm that the brand is listed in the updated SBA Franchise Directory.

Shifting Deal Structures

If a practice acquisition includes rollover equity, the SBA now requires it to be structured as a stock purchase rather than an asset purchase. This is a major shift as, traditionally, stock purchases are the default mechanism in healthcare transactions.
Conceptually, the idea behind this shift is to ensure sellers remain responsible for existing liabilities if they maintain an interest in the business.
For purposes of clarity, the below table indicates where a stock purchase is required versus an asset purchase.

Scenario	Is Stock Purchase Required?	Why?
Buyer acquires 100% of the business and the seller exits completely	No — asset purchase still allowed	No ownership rollover — buyer can structure as asset or stock
Buyer acquires business and seller retains any ownership (rollover equity)	Yes — stock purchase required	SBA requires stock purchase when any ownership is retained (there is no minimum threshold, any equity rollover requires a stock purchase)
Buyer and seller agree to use a seller note for part of purchase price but no rollover equity	No	As long as seller exits entirely, structure remains flexible
Buyer uses SBA loan and seller stays involved only as an employee or consultant (no ownership)	No	Employment does not count as ownership — asset purchase is fine

Seller Financing Now Comes with Strings Attached

Seller financing can only account for up to 50% of the required equity injection.
Any seller note must be on full standby (no payments) during the SBA loan term.
If the seller retains less than 20% ownership, they must personally guarantee the entire SBA loan for two years.

Points two and three, respectively, could be major dealbreakers for a seller, as it will likely discourage them from agreeing to earnouts, partial payments, or seller financing. These changes will also force buyers to secure more capital upfront or to avoid SBA funding entirely in favor of private equity (PE) funding.

SBA Fees Are Back

Beginning in late 2023 and in an effort to stimulate lending, the SBA removed certain upfront fees on loans under $1M.
Borrowers will now once again be required to pay upfront guaranty and servicing fees on all loans approved after March 27, 2025.

Why Is This Happening?

The SBA states that it is tightening lending rules to address concerns over (i) rising default rates, (ii) inconsistent credit standards among lenders, (iii) risky transactions in franchise-heavy industries, and (iv) a lack of sufficient borrower equity in deals.

According the SBA, these changes aim to increase accountability, reduce risk in the SBA’s loan portfolio, and ensure buyers are putting real money into the business, not just relying on seller notes or inflated valuations.

What This Means for Practice Owners

If you are considering selling your practice, making an acquisition (or practice expansion), or taking on a partner, you’ll need to plan ahead with your team of financial and legal advisors. You will want to ensure that deals are structured in compliance with the new lending parameters if they involve SBA funding so as to avoid an outright denial.

If you’re thinking about a transaction involving SBA financing, now is the time to reevaluate your strategy and consult the team at Marti Law Group (wrap up how you usually would).