This revision from last week’s procedural notice marks the first signal of the Administration’s intent to modify the “do what you do rule.”

The Shift in Requirements

The updated policy represents a significant pivot in how equity injections are verified in the event of an early default on the loan. Now, the focus is on confirming that any required equity injection is made in accordance with the stipulations outlined in the Loan Authorization, ETRAN Terms and Conditions, or other documented loan agreements.

Furthermore, the source of the equity injection must be in compliance with SOP 50 10 guidelines effective at the time of the loan’s approval. This documentation must be included in the lender’s Purchase Package, marking a shift towards increased accountability and verification post-loan issuance, specifically following an early default.

Previous Guidelines on Equity Injections

Under the earlier rules, the requirement for equity injections into SBA loans was somewhat flexible but closely tied to a lender’s standard processes for non-SBA guaranteed commercial loans of similar size. If a lender typically mandated an equity injection for such loans, they were expected to verify and apply similar requirements to their SBA loans. However, lenders had the discretion to adjust the amount of equity or equity injection needed if they believed the applicant could benefit from greater leverage than conventional benchmarks suggested.

In instances where a lender’s conventional loan processes did not demand an equity injection, the SBA mirrored this stance for its loans, exempting the lender from imposing such a requirement on SBA loans.