SBA 504 Program Updates / May Rates

The Small Business Administration (SBA) has recently streamlined regulations including significant changes to how business affiliations are determined as well as upcoming changes to the Loan Authorization. These changes, according to the SBA, leverage the digital advancements and experiences learned during the COVID-19 pandemic.

Regarding business affiliations, the new rules aim to clarify the criteria. Affiliation is now determined by ownership interests rather than control or leadership. The changes include that an entity is considered affiliated with the applicant if it owns more than 50% of the applicant’s business or if one individual owns more than 50% of both entities within the same three-digit NAICS code. In addition, affiliation will no longer exist through franchise and management agreements. This shift is expected to reduce the number of entities considered affiliates, thereby broadening the pool of businesses eligible for SBA assistance and simplifying the application process.

The SBA is making significant changes to Loan Authorizations, although the industry is awaiting further information on what will replace this long-standing element of the lending process. The first step will be to rename the document to Terms and Conditions, while future streamlining will reduce the document to only two pages.

With these regulatory changes, SBA 504 loans, known for their below-market, fixed interest rates and long repayment terms, have become an even more attractive option for many small business owners, especially those looking to purchase commercial real estate. The loosening of lending and affiliation criteria will enable more small businesses to secure funding to expand and develop their operations.