How Trump’s SBA Quietly Pulled The Rug On Small Business Investors

The Small Business Administration (SBA) is reportedly changing its 7A loan program rules without notice, affecting deals already in progress. Previously, only the borrower who signed a personal guarantee was barred from future government-backed loans if a deal failed. However, lenders now claim this rule applies to all individuals involved in owning a business, including passive investors with minority interests. This means anyone who invested in an SBA-backed deal that subsequently failed could be excluded from future government loans, a risk not part of original agreements. The SBA has not issued guidance on this, leading to speculation. Some believe it's a glitch, while others think it's an intentional move to prevent private equity funds and outside investors from leveraging government-backed loans with favorable terms to boost returns. The 7A program is crucial for financing small business acquisitions, with the SBA guaranteeing a significant portion of these loans, making them possible. Grant Hensel, a fund founder, experienced this change firsthand when one of his deals stalled due to a minority investor being flagged for a past delinquent SBA loan. He was informed that a recent update removed the distinction between the main borrower and passive owners, grouping everyone together. This new standard means if any investor was tied to a past delinquent or defaulted SBA loan, the entire deal could be blocked. Hensel noted that this change is not written in the rules and there has been no official announcement, making the retroactive application particularly concerning for investors.