SBA Reverses Biden-Era Loan Policies, Reinstates Strong Underwriting Standards

The U.S. Small Business Administration (SBA) announced today it is eliminating a series of Biden-era policies that had significantly reduced underwriting standards within the 7(a) loan program. The move, aimed at preserving the financial integrity of the program and protecting taxpayer dollars, comes under the leadership of SBA Administrator Kelly Loeffler.

“The last Administration inherited a thriving 7(a) loan program but left it in critical condition – dismantling every common-sense guardrail that kept it solvent and self-sustaining,” said Administrator Loeffler. “From slashing lender fees to destroying underwriting standards, Biden’s reckless policies have triggered a surge in defaults which now threatens the viability of the program along with its risk to taxpayers. Therefore, the SBA is taking immediate action to restore prudent lending criteria, rein in risk, and save the 7(a) program before it collapses under the weight of bad policy.”

The SBA’s 7(a) loan guaranty program provides government-backed capital through private lenders to small businesses unable to obtain traditional financing. By statute, the program is required to operate at “zero-subsidy,” meaning it should incur no cost to taxpayers. Historically, the program has been self-sustaining, with lender fees covering borrower defaults.

Under the Biden Administration, the SBA eliminated lender fees and implemented a new underwriting standard called “Do What You Do,” which removed longstanding lending criteria. This policy shift allowed lenders to approve government-guaranteed loans for borrowers who previously might not have qualified. As a result, the program experienced a significant rise in defaults and delinquencies, and by 2024, the 7(a) loan program posted a negative cash flow of approximately $397 million — the first such deficit in 13 years.

Last month, the SBA began efforts to reverse course by reinstating lender fees within the 7(a) loan program. Today, the agency announced SOP 50.10.8, a new policy that formally ends the “Do What You Do” underwriting approach and reintroduces more stringent pre-Biden standards for loan approvals.

Additionally, the SBA will reinstate and streamline the Franchise Directory, which serves as a resource for lenders to determine the eligibility of certain businesses seeking SBA loans.