SBA SOP 50 10 8.1, B.Ch3.C.2 — Underwriting
Verbatim text of SBA SOP 50 10 8.1 (with Technical Policy Updates) section B.Ch3.C.2 (Underwriting). Effective 2026-10-01 for applications received by SBA on or after that date; SOP 50 10 8 governs applications submitted through 2026-09-30. 1 provision(s) quoted from SBA's .docx.
See also
SBA lending corpus: SOP 50 10 and the active notices, with the expiry watcher.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8.1, B.Ch3.C.2 — Underwriting — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8.1 B.Ch3.C.2
6 sections · 7,772 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§2. Underwriting245 ch
2. Underwriting a. Lender’s Credit Analysis: The Lender’s credit memorandum and analysis must address the Applicant’s ability and likelihood to repay the loan from the cash flow of the business and past performance by documenting the following:
iA description and history of the business, including828 ch
i. A description and history of the business, including: a) Nature of the business, including NAICS code; b) Length of time in business under current management; c) Depth of management experience in the industry or a related industry; d) Brief description of the business’s management team, including the principal’s involvement in the daily onsite management of the business or how the daily operations will be managed if the principals are not there on a daily basis. e) If the daily operations will be handled under a management agreement, Lenders must obtain a copy of the management agreement (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory), review it to determine if it results in an ineligible passive business, and retain in their loan file.
iiFinancial analysis of repayment ability3,467 ch
ii. Financial analysis of repayment ability454 ch
ii. Financial analysis of repayment ability: a) The Lender must analyze the Applicant’s repayment ability in accordance with 13 CFR § 120.191. The analysis must demonstrate that cash flow is sufficient to meet all debt obligations, including the proposed SBA loan, on a fully amortizing basis using the maximum loan amount and maturity approved. The financial analysis for all Applicants: i) Historical or projected cash flow analysis as outlined below:
aCalculation of earnings before interest, taxes, depreciation, and amortization (EBITDA);93 ch
(a) Calculation of earnings before interest, taxes, depreciation, and amortization (EBITDA);
bJustification for additions and subtractions to cash flow such as the following2,920 ch
(b) Justification for additions and subtractions to cash flow such as the following: (i) Unfunded capital expenditures; (ii) Non-recurring income or expenses; (iii) Expenses and distributions; (iv) Distributions for S-Corp taxes; (v) Rent payments; (vi) Owner’s Draw; and/or (vii) Global cash flow analysis that includes assessment of the impact on cash flow to/from any affiliate business. Anticipated cash flow from rental income from the Project Property may be included in the global cash flow analysis; (viii) The effect any affiliates may have on the ultimate repayment ability of the Applicant. b) For cash flow projections, the Lender must calculate the debt service coverage and provide the assumptions supporting the projected cash flow coverage, including, as applicable: i) Justification for revenue growth, i.e., new product lines, sales channels, and new production facilities; ii) Justification for any reduction in expenses; iii) A comparison to current industry trends. iv) Spread of pro forma Business Balance Sheet (current business balance sheet adjusted for all changes in assets and liabilities as a result of the SBA loan, other debt, any required equity injection, and use of loan proceeds); v) Ratio calculations (based on the pro-forma Balance Sheet and historical and projected Income Statements) for the following financial ratio benchmarks: Current Ratio, Debt/Tangible Net Worth, Debt Service Coverage, and any other ratios the Lender considers significant for the business/ industry (e.g., inventory turnover, receivables turnover, and payables turnover, etc.) including discussion of Lender’s comparison to industry trends; vi) Analysis of Borrower’s working capital adequacy. c) Assessment of collateral adequacy in accordance with Appendix 19, Para. B.4; and d) Insurance Requirements, including: i) Life Insurance – on whom and how much. If life insurance will not be required, provide justification. ii) Business hazard & liability insurances. e) Lender’s rationale for recommending approval, including a discussion and analysis of the following: i) The factors demonstrating the Applicant does not have credit available elsewhere on reasonable commercial terms from non-Federal, non-State, non-local government sources in accordance with SOP 50 10 8.1, Section A, Ch. 1, Para. H. ii) Competition; iii) Seller financing; iv) Stand-by agreements; v) 90+ day delinquencies; vi) Trade disputes and/or; vii) Federal, State, or local citations which would preclude the Applicant from normal business operations; viii) Discussion of any liens, judgments, bankruptcy filings, or pending litigation, including divorce proceedings; ix) If the application involves a franchise (as defined by FTC), the Lender must review any credit information provided, such as the number of failed franchisees and cash flow projections provided by the franchisor. x) Discussion of other relevant information.
iiiExisting Businesses - Historical DSCR Analysis938 ch
iii. Existing Businesses - Historical DSCR Analysis: a) The Lender must evaluate repayment ability using the Applicant’s historical financial performance, including the three most recent fiscal years of financial statements (or tax returns) and current interim financial statements. i) The analysis must: (a) Include all existing and proposed debt obligations; (b) Calculate total debt service coverage after inclusion of the SBA loan; (c) Be based on the amortizing loan term that does not exceed ten (10) years and uses the maximum loan amount approved; (d) The Applicant must demonstrate a minimum debt service coverage (DSC) ratio of 1.15:1 based on historical performance. Global DSC ratio must be at least 1.0:1, and (e) If the most recent full year and interim financial statements do not demonstrate DSC ratio of at least 1.15:1, the Lender must obtain and analyze two years of projections in accordance with the paragraph below.
ivStart-Ups, New Businesses, and Transactions Requiring Projections1,156 ch
iv. Start-Ups, New Businesses, and Transactions Requiring Projections: a) For start-ups, new businesses, or when historical performance is insufficient, the Lender must base repayment ability on projected financial performance. i) The projections must: (a) Cover a minimum of two years; (b) Include detailed and supportable assumptions; (c) Be based on the amortizing loan term that does not exceed ten years, using the maximum loan amount; (d) Include the total debt load of the business, including the proposed SBA loan; (e) The projections must demonstrate that the Applicant will achieve a DSC ratio of at least 1.15:1 within one year from the date of loan disbursement; (f) Global debt service coverage must be at least 1:1; (g) For Global DSC, the Applicant must provide a quarterly cash flow analysis for a period of 24 months; (h) The Lender must document and support any reliance on projections, including justification for variance from historical performance, if applicable. To perform a complete analysis of debt service, it is important for a Lender to obtain a current debt schedule prepared by the Applicant, including any shareholder debt.
vDSC Ratio Calculation Requirements for all Applicants1,138 ch
v. DSC Ratio Calculation Requirements for all Applicants: a) The DSC Ratio Calculation must include all business debt (existing and proposed); b) The calculation must be based on a fully amortizing repayment structure; c) The maximum loan amount and maturity approved must be used; and d) The analysis must demonstrate ongoing repayment ability and sustainability of cash flow. b. Equity requirements (13 CFR § 120.150): i. Depending on whether the loan is processed on a non-delegated or PLP basis, the Lender or SBA must determine that there is sufficient invested equity. To do this, the Lender (for PLP lenders) or SBA (for non-delegated lenders) must determine if the equity position and the pro forma debt-to-worth are acceptable based on the factors related to the type of business, experience of management, and the level of competition in the market area. The Lender must include in its credit memorandum a detailed discussion of the equity position (net worth) and any required equity injection. Unlike Standard 7(a) and 7(a) Small loans, 7(a) MARC loans do not have a minimum required equity injection based on use of proceeds.
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Source of record: https://claudeforcompliance.com/regs/sba-sop81-b-ch3-c-2/
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