Small business owners will find it easier to grow across markets under new SBA rules.
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Lost in the shuffle of the government shutdown, the Small Business Administration (SBA) issued a new procedural notice on Sept. 30. Procedural notices are the SBA’s way of clarifying or changing how its loan programs operate. This one affects the 7(a) and 504 programs, the two main channels for government-backed small business financing. Together, they help entrepreneurs buy companies, real estate, and equipment by reducing risk to lenders by backing the loans with a government guarantee.
The most notable change centers on how the agency defines a “new business.” Until now, if an existing company wanted to acquire another in the same industry, the SBA required that purchase to be in the same geographic market. Otherwise, the deal was treated as a “new business,” which carries stricter rules. The new guidance drops the geography test. From now on, if a company buys or starts another using the same six-digit NAICS code—the federal industry classification system—and the ownership is identical, the SBA can call it an expansion regardless of where the acquisition is located, not a new business. For example, a life insurance carrier (NAICS code 524113) could use the new rule to borrow federally-backed money to add to its book of business by purchasing a similar brokerage operation located hundreds of miles away or in the next state. However, if the life insurer wanted to diversify its business into health insurance, which carries a different code (NAICS code 524114), it would face stricter lending requirements.
The distinction is important because expansions often qualify for more favorable terms. A purchase that falls under “new business” generally requires at least a 10% equity injection. By contrast, expansions may not require any cash contribution, provided the existing company signs on as a co-borrower and the combined operation has the cash flow to support the debt.
Matthias Smith, founder of Pioneer Capital Advisory, which advises small business buyers, believes the move reflects how business is run today. In the past, the SBA and banks often limited expansions to deals within driving distance so owners could exercise “daily control.” But remote management is now common, with operators running businesses over Zoom. The SBA’s update recognizes that reality (ironically, even as the federal government, when it’s not shutdown, has pushed its own workers back into offices).
Smith expects the change to matter most for add-on acquisitions across state lines, especially in industries like accounting that can be managed remotely. He says it won’t spark a surge of deals overnight, but it removes a barrier that often forced buyers to put cash into healthy businesses just to complete acquisitions. Lenders will still have discretion to reject far-flung deals if they don’t make sense, but they now have more room to approve them while not forgoing a government guarantee.
The notice included other updates. Among them, the SBA eased collateral rules by letting lenders sell loans on the secondary market once a lien is filed, even before it’s fully recorded. It also waived the independent valuation requirement for certain Employee Stock Ownership Plan (ESOP) transactions and increased the contingency fund allowance for construction projects financed through its 504 Loan Program.
Most of the new Trump administration’s SBA rules have tightened credit compared with the Biden years. Borrowers face tougher checks, higher down payments, and stricter debt coverage standards. Against that backdrop, this clarification is a small step in the other direction. It makes it easier for proven operators to grow inside their industry without tying up more capital.
That expansion comes on top of record demand. For fiscal 2025, which ended Sept. 30, the SBA approved $37.3 billion in 7(a) loans—the most since at least 2017.
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