SBA Procedural Notice 5000-872764, Revisions to SOP 50 10 8 – 504 and 7a Loan Program Updates (Click Here for the Procedural Notice) became effective on September 30, 2025. One of the changes within this Procedural Notice is the modification to the circumstances in which SBA considers the start or acquisition of a business to be a business expansion and not a new business for purposes of determining the applicable equity injection requirements.
Prior to the release of this Procedural Notice, SBA considered a transaction a “business expansion” based on the following:
SOP 50 10 8 with Technical Updates (pages 134 and 171)
- When an existing business starts or acquires a business that is in the same 6 digit NAICS code with identical ownership and in the same geographic area as the acquiring entity and they are Co-Borrowers, SBA considers this to be a business expansion, and SBA will not require a minimum equity injection. “Same geographic area” means the acquiring entity is located within a reasonable distance of the subject business, allowing management to exercise similar daily control over both locations.
As described in Procedural Notice 5000-872764, SBA has revised the factors for a business expansion to remove “in the same geographic area as the acquiring entity” in the eligibility criteria to distinguish between a new business and a business expansion.
Accordingly, the definition for New Business is found in Appendix 3: Definitions (page 408), which applies to both the 7(a) and 504 Loan Programs, and is revised to read as follows:
“New Business: (7(a) and 504) A business that has been in operation for 2 years or less at the time the loan is approved. A business that has been in operation for more than 2 years at the time the loan is approved may be considered a New Business if it is a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations.
If there is a change of ownership, the CDC must review the management and level of debt in order to decide whether an additional Borrower’s contribution of 5% is necessary. Operations are deemed to begin when the business begins generating regular recurring revenue from its intended operations.
When an existing business starts or acquires a business that is in the same 6-digit NAICS code with identical ownership, and they are Co-Borrowers, SBA considers this to be a business expansion and not a new business.”
In addition, the Notes in Section B, Chapter 1, Paragraph C.2.b.iii.b) (page 134) and Section B, Chapter 2, Paragraph C.2.a.ii.b)ii)(b) (page 171) are revised to read as follows:
Note: When an existing business starts or acquires a business that is in the same 6-digit NAICS code with identical ownership, and they are Co-Borrowers, SBA considers this to be a business expansion and not a new business. “Same geographic area” means the acquiring entity is located within a reasonable distance of the subject business, allowing management to exercise similar daily control over both locations.
For SBA 7(a) Standard and Small loans this change means that SBA does not require a minimum equity injection when the existing business and start-up or new business:
- Share the same 6-digit NAICS code; and
- Have identical ownership; and
- Are Co-Borrowers.