The U.S. Small Business Administration (SBA) recently announced updates to its Standard Operating Procedures (SOP), with several important changes taking effect October 1, 2026.

These updates may impact how SBA-backed transactions are evaluated and structured—particularly business acquisitions and changes in ownership.

If you're considering buying a business, transitioning ownership, or using SBA financing to support an expansion, here's what you should know.

Key Changes to SBA Guidelines

Debt Service Coverage

One of the most significant changes involves Debt Service Coverage Ratio (DSCR), which measures a business's ability to generate enough cash flow to cover its debt payments.

• Business acquisitions now require a 1.25x historical DSCR.
• Expansion projects remain at a 1.15x historical DSCR.
• Projections alone can no longer be used to overcome insufficient historical cash flow.

This makes it especially important for buyers to evaluate the historical financial performance of a business early in the acquisition process.

Minimum Equity Injection

The standard 10% equity injection remains in place for initial business acquisitions.

Seller participation may still be an option in certain circumstances. Seller debt can count toward the required equity injection when it is placed on full standby for the life of the SBA loan and meets applicable SBA requirements.

Additional Requirements for $3 Million+ Acquisitions

For business acquisitions of $3 million or more, a Quality of Earnings (QoE) report is generally required.

Normalized earnings identified through the QoE must be used when calculating the transaction's DSCR. Certain transactions, including partner buyouts and ESOP transactions, are generally excluded from this requirement.

Business Acquisition & Change of Ownership Requirements

Business acquisitions now follow Standard 7(a) processing requirements and must comply with SBA Change of Ownership requirements regardless of loan size.

For buyers and sellers, this means understanding the SBA requirements early can help avoid surprises later in the process.

Seller Transition Period

The allowable seller transition period has increased from 12 months to 24 months.

This additional time can provide buyers and sellers with more flexibility when planning for the transition of ownership, relationships, knowledge, and day-to-day responsibilities.

Refinancing Seller Notes

The refinance window for payable seller notes has increased from 24 months to 36 months.

This may provide additional flexibility when structuring transactions that include seller financing.

Timing Matters

If you're already working on a business acquisition or have a transaction under a letter of intent (LOI), it's important to review the timeline and transaction structure in light of the new guidelines.

Applications approved and assigned an SBA loan number before October 1, 2026, should be evaluated under the SOP in effect at the time of approval.

Planning a Business Acquisition?

SBA financing can be an important tool for entrepreneurs looking to purchase a business, transition ownership, or support growth. But with the latest guideline changes, getting the right team involved early is more important than ever.

At Falcon National Bank, our SBA team can help you understand your financing options, navigate the SBA process, and structure your transaction around your goals.

Considering buying a business or transitioning ownership? Let's talk.

Connect with our SBA team →