Best Practices: SOP 50 10 8 Update – New 7(a) Small Loan Underwriting Requirements

Effective March 1, 2026, SBA lenders obtaining SBA approval for 7(a) Small Loans must adhere to SBA Procedural Notice 5000-875701 (the “Notice”), published January 16, 2026.  SBA announced it is discontinuing use of the SBSS Score for federally regulated lenders and requires commercial credit analysis processes and procedures consistent with their similarly sized non-SBA guaranteed commercial loans.

SBA lenders may continue to use internal business credit scoring models permitted by their primary Federal regulator as stated in the SOP 50 10 8 to assess the credit history of the applicant, provided that such model does not rely solely on consumer credit scores, and provided the lender also applies its appropriate, prudent, and generally accepted industry credit analysis and procedures.

For Small Business Lending Companies (SBLCs), SBA indicates these lenders may use credit scoring as permitted prior to the Notice, but SBLCs are required to undergo SBA loan training for lenders and provide their credit scoring model for review by SBA on an annual basis.

Per the Notice, SBA lenders are now required to include the following in their credit analysis for 7(a) Small Loans:

• Analysis of the Applicant’s (and Operating Company, if applicable), (i) debt service coverage, (ii) two most recent months of commercial bank activity or statements, and (iii) projected earnings (if applicable);
  • Debt service coverage is measured by dividing the operating cash flow (OCF) by the debt service (DS).  OCF is defined as earnings before interest, taxes, depreciation, and amortization (EBITDA).  Lenders may make additions and subtractions to OCF pursuant to rules found in Section B, Ch. 1: Standard 7(a) Loans.  Debt service is defined as the future required principal and interest payments on all business debts inclusive of new SBA loan proceeds.
• For 7(a) Small Loans, the Applicant’s debt service coverage ratio must be equal to or greater than 1.1:1 on an historical and/or projected cash flow basis.

The Notice does not clarify which bank statements, if any, are required for startup applicants or for change of ownership transactions.  If federally regulated SBA lenders use a business credit scoring model in making their credit decision, they must document their loan file and include it with their E-Tran submission.  Lenders should refer to the Notice for the full text of the changes to the SOP 50 10 8.  For assistance with SBA compliance matters contact us at info@starfieldsmith.com.