SBA Loan Requirements Changing in June 2025

Effective June 2025, the SBA is reinstating many requirements that were in place prior to January 2021, effectively rolling back updates to the programs made during the Biden administration. Among the most notable changes are the reinstatement of the Franchise Directory, a mandatory 10% equity injection for loans, personal guarantees for business sellers retaining partial ownership, and stricter limits on seller financing.

Amid an uncertain economic landscape during the early months of the second Trump administration, these changes to seller financing and deal structures may have widespread implications for business transactions across industries.

Reintroduction of the Franchise Directory

The Franchise Directory will return, providing a list of SBA-approved franchises. For aspiring franchisees, this simplifies the loan process and could encourage more entrepreneurs to explore franchise opportunities. Franchises listed on the directory as of May 11, 2023, will have until July 31, 2025, to execute the SBA Franchisor/Distributor Certification to maintain their listing.

Mandatory 10% Equity Injection

Starting June 1, 2025, SBA loans will require a minimum 10% equity injection, with no exceptions. While this has been standard for many deals, some lenders previously allowed no down payment for business acquisitions. This update ensures borrowers have a personal financial stake in their ventures from the start.

Limits on Seller Financing for Equity

The SBA is tightening rules on seller financing. Seller contributions now can only account for up to 50% of the required equity injection, and the financed portion must remain on standby for the full term of the loan. While these measures are designed to increase deal stability, they reduce flexibility for buyers relying heavily on seller financing to close transactions.

Personal Guarantees for Sellers Retaining Partial Ownership

For sellers who retain partial ownership in a business, the SBA will now require a personal guarantee for the full loan amount. This applies regardless of how small the retained stake is. For sellers interested in remaining involved post-sale, this policy adds a layer of financial risk.

Life Insurance Requirements Reinstated

Life insurance policies for borrowers or guarantors will once again be required. These policies protect lenders in the event of an individual's unexpected passing. However, securing SBA-compliant life insurance can take time, so it's important to start this process early when pursuing financing.

Cannabis-Related Businesses' Loan Eligibility

Businesses involved in cannabis-related activities remain ineligible for SBA loans, reflecting federal laws. This applies to companies that grow, sell, produce, or distribute marijuana products, even in states where cannabis operations are legal.

Indirect cannabis-related businesses, such as those selling equipment or services to marijuana companies, may also be excluded. On the other hand, hemp businesses and CBD-related companies may qualify for SBA loans if they meet federal and state regulatory requirements. Borrowers in these industries should consult with an expert to ensure they comply.