SBA Craziness

April 03, 2026

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Los Angeles, CA, USA

The SBA is now checking whether anyone in your cap table has defaulted, or is currently in default, on an SBA loan. If so, your application can be automatically declined. This is especially painful when you looking at loan mod or a new SBA expansion loan for an add-on acquisition. SBA is not just underwriting your business anymore. They are also looking at the credit standing of your investors, regardless of how small their ownership stake is... and holding the Sponsor accountable... crazy.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I have heard about this issue and here is what I have learned after making some phone calls. When the SBA started requiring the data for all equity investors for SBA loans so they could verify citizenship status, this was information the SBA did not historically collect. Typically the SBA just collected the data for any guarantors and if those guarantors had a past loss tied to them in the federal government system, it would trigger a denial for the SBA authorization in the E-Tran system, which is the system lenders pull their final SBA authorization from. Now that the SBA is collecting the data for all owners, it is triggering any owners tied to SBA deals that had had losses in the past to get tagged under the previous loss provisions and the authorization to get denied, even if those individuals were not guarantors on a past loan. Based on what I have been told, this is not being done due to a change in SBA policy. It is due to the way the E-Tran system is working. The SBA is not "underwriting investors", it is just merely checking them against the federal directory of past historical losses. Right now the only way the agents at the SBA have to resolve this issue is to remove these investors from the acquisition. However, I have been told by a few good sources that the SBA is working on updating the system to fix this issue now that they are aware of it. If the SBA were to change the rules and make minority investors liable for debt they were not a guarantor on, in my opinion that would require a change of the SBA Standard Operating Procedure ("SOP"), which is not something that has been done. There are no pending or announced changes, and typically those changes have a comment period before they become policy. Hopefully some updated guidance will come out soon to correct this issue. My guess is that fixing it is not a priority because it probably has impacted a limited number of deals (most of the Bankers I originally asked about this issue, their institutions had not experienced it yet). Hopefully this will get resolved this month. Again, I could be wrong and a bigger issue could be present here, but my gut and the conversations I have had is telling me that is not the case. Unfortunately, for those buyers impacted in the near term, this is probably of little comfort and I am sorry for the situation you are in. It is dealing with the bureaucracy, so things rarely go completely smoothly.

Reply by a searcher
from Northwestern University in San Francisco, CA, USA

@redacted‌ raised this issue a couple weeks ago. He has some additional detail here: https://searchfunder.com/post/did-the-sba-just-slam-the-door-on-investor-equity-in-self-funded-search In a later email he said: "We’ve received some early, downstream indications that this may have been a glitch related to the ETRAN system - not an intentional policy change - and will be corrected. That said, we’re still working to confirm directly with the SBA." Not sure if there's a more recent update, but hopefully this is temporary.

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