May 4 through 10, 2025 is recognized by the United States Small Business Administration (the “SBA”) as National Small Business Week, which acknowledges the critical contributions of America’s entrepreneurs and small business owners. In honor of National Small Business Week, Cooper Levenson provides this important update on recent changes to SBA-sponsored lending programs that affect many small businesses.
Section 7(a) Lending Fees
On March 27, 2025, the SBA announced that it was restoring lender fees for its Section 7(a) Loan Program.
The Section 7(a) Loan Program derives its name from Section 7(a) of the Small Business Act of 1953, and is the SBA’s primary business loan program. Through the Section 7(a) Loan Program, the SBA provides loan guaranties to lenders, allowing lenders to provide financing to small businesses with special requirements. Loans originated under the Section 7(a) Loan Program are commonly referred to as “7(a) Loans.” 7(a) Loans may be used for:
- Acquiring, refinancing, or improving real estate and buildings;
- Short- and long-term working capital;
- Refinancing current business debt;
- Purchasing and installation of machinery and equipment, including AI-related expenses;
- Purchasing furniture, fixtures, and supplies;
- Changes of ownership (complete or partial); and
- Multiple purpose loans, including any of the above.
Effective March 27, 2025, there is a 0.55% annual service fee for the guaranteed portion of the outstanding balance of a 7(a) Loan. Previously, loans of $500,000 or less did not include an annual service fee; loans from $500,001 to $1,000,000 included a service fee of 0.17%; and loans exceeding $1 million included a 0.55% service fee.
The SBA also announced that, effective March 27, 2025, the following up-front fees will be imposed:
For loans with a maturity that exceeds 12 months, the upfront fees are:
- For loans of $150,000 or less: 2% of the guaranteed portion. The lender may retain no more than 25% of the fee (i.e., at least 1.5% must be remitted to SBA).
- For loans of $150,001 to $700,000: 3% of the guaranteed portion.
- For loans of $700,001 to $5,000,000: 3.5% of the guaranteed portion of the loan up to and including $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.
For 7(a) loans with a maturity of 12 months or less (Short-term loans): 0.25% of the guaranteed portion.
Previously, no up-front fee was imposed on loans from $700,001 to $1,000,000.
The full fee schedule is published here.
Section 7(a) Lending Criteria
On April 22, 2025, the SBA announced changes to the Section 7(a) Loan Program, eliminating the “Do What You Do” lending standard introduced in 2023. The “Do What You Do” lending standard allowed lenders to apply their existing lending practices that the lender used for similarly sized, non-SBA loans—instead of the SBA’s proscribed criteria, when underwriting 7(a) Loans.
Under the lending criteria announced on April 22, 2025, the SBA restored the standardized lending criteria in effect prior to the “Do What You Do” lending standard. Effective June 1, 2025, lenders must apply the SBA’s proscribed criteria when underwriting 7(a) Loans. The effect of the change will vary by lender, depending upon each lender’s prior 7(a) Loan criteria.
The SBA’s loan origination policies and procedures governing the 7(a) Loan Program are published here.
If you are a small business owner or are seeking to form a small business, you are encouraged to contact Cooper Levenson’s Business & Tax practice group to discuss your options.
Steven Land is an attorney in Cooper Levenson’s Business & Tax practice group in its Atlantic City office. He concentrates his practice on business transactions, mergers and acquisitions, tax matters, and estate planning. Steven may be reached at (609) 572-7530 or via e-mail at sland@cooperlevenson.com.
The content of this post should not be construed as legal advice. You should consult a lawyer concerning your particular situation and any specific legal question you may have.