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SBA brings back 25-year term for loans with mixed use of proceeds

The US Small Business Administration (SBA) recently announced implementation of SOP 50 10 7.1 which greatly improves the ability of SBA 7(a) lenders to meet the credit needs of small businesses. One notable change is the treatment of loan requests with a mixed use of proceeds. Specifically, for transactions such as business acquisitions that include the purchase of commercial real estate (CRE), the agency now allows for a maximum maturity of 25 years if 51% or more of the loan proceeds are for the real estate. This enhancement is a huge win for small business borrowers as illustrated in the following example:

Loan Use of Proceeds Loan Amount Percentage of Total Loan
Commercial Real Estate $600,000 60%
Business Acquisition $300,000 30%
Working Capital $100,000 10%

In this example, the CRE accounts for 60% of the total amount borrowed and is eligible for a 25-year loan maturity. This is a massive benefit for the small business borrower because:

  • Longer maturity means lower monthly payments
  • A lower monthly payment means greater cash flow
  • Greater cash flow means more capital available to fund growth and expansion opportunities for the business

In the previous SOP version (50 10 7), the SBA required a blended term for loans with a mixed use of proceeds with real estate getting a maximum 25-year term and other uses of proceeds capped at a maximum 10-year term. This required a calculation for weighted average term and, generally, a less favorable loan term for the small business borrower.

Another noteworth change is the SBA Guaranty (or "upfront") fee:

  • Loans ≤ $1,000,000 = 0.00%
  • Loans $1,000,001 to $2,000,000 = 1.45% up to $1MM, then 1.70% over $1MM
  • Loans ≥ $2,000,001 = 3.50% up to $1MM, then 3.75% over $1MM

Note: Different rates apply for Export Working Capital Program (EWCP) and veteran-owned business loans.

Kudos to the agency for finding ways to expand opportunities for small business owners to access capital. This change will go into effect on November 15, 2023.

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