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Affiliation and Lending Criteria for SBA Business Loan Programs – Final Rule Update

The U.S. Small Business Administration (SBA or Agency) recently amended various regulations governing SBA’s 7(a) Loan Program and 504 Loan Program, including regulations on use of proceeds for changes in ownership, lending criteria, loan conditions, reconsiderations, and affiliation standard, to expand access to capital to small businesses and drive economic recovery. The amendments to affiliation standards will also apply to the Microloan Program, Intermediary Lending Pilot Program, Surety Bond Guarantee Program, and the Disaster Loan programs (except for the COVID Economic Injury Disaster Loan (EIDL) Disaster Loan Program).


Hazard Insurance Requirements under Loan Conditions in Section § 120.160(c) were amended to eliminate a burdensome regulatory requirement for small loans while providing SBA Lenders with the flexibility to use their own policies for similarly-sized non-SBA guaranteed loans regarding hazard insurance.

Currently, the SBA requires hazard insurance for 7(a) and 504 loans on all collateral and does not distinguish this requirement by loan size. The SBA has determined that the hazard insurance requirement can be burdensome for the smallest businesses borrowing the smallest amount of money.

Effective May 11, 2023:

  • SBA modified § 120.160(c) to require hazard insurance for all 7(a) loans greater than $500,000 and 504 projects greater than $500,000.
  • For loans of $500,000 or under, SBA will include guidance in the Loan Program Requirements that SBA Lenders must follow the hazard insurance policies and procedures they have established and implemented for their similarly-sized, non-SBA-guaranteed commercial loans.
  • SBA Lenders must continue ensuring that borrowers obtain flood insurance per § 120.170 when required under the Flood Disaster Protection Act of 1973 (Sec. 205(b) of Pub. L. 93-234; 87 Stat. 983 (42 U.S.C. 4000 et seq.)).
  • SBA does not require collateral for loans $25,000 or less, so these loans are not impacted by the revision to hazard insurance requirements.

To view the final rule, click here.


If you have questions regarding potential impact to your entity’s business rules, please reach out to your relationship manager.