Kelly Loeffler has made restoring \u201cguardrails\u201d and increasing accountability in the SBA\u2019s 7(a) loan program a central theme of her tenure. Some investors believe that may also mean tougher treatment for passive investors.<\/p>\n
AP<\/p>\n
The Small Business Administration<\/strong> is changing the rules mid-game, without notice, and applying those changes to deals that are already on the books.<\/p>\n The underhandedness is about who counts in the 7(a) program, which backstops about 70,000 loans a year with about $100 billion worth currently outstanding<\/a>. In the past, only the borrower who signed the personal guarantee was barred from future SBA and other government-backed loans if a deal went bad. Now lenders say that rule is being applied to everyone involved in owning the business, including passive investors with minority interests. That means if you put any money into an SBA-backed deal and it fails, you may be shut out of future government-backed loans just as if you were the one signing on the dotted line.<\/p>\n That risk was not part of the original agreement.<\/p>\n No one is entirely sure if this is a policy change or something else. Investors and lenders say deals are being flagged in the SBA\u2019s system, but the agency has not issued guidance explaining why. That has left people guessing. Some think it could be a glitch. Others believe it is intentional, part of an effort to stop funds\u2013as in private equity funds\u2013 and other outside investors from using government-backed loans with longer repayment periods and smaller down payments to boost their returns.<\/p>\n The SBA didn\u2019t respond to requests for comment.<\/p>\n The 7(a) program is the main way people finance small business acquisitions. A bank makes the loan, and the buyer usually puts down about 10%. The SBA then guarantees a large share of that loan, often around 75%, which means if the borrower cannot repay, the government covers that portion for the bank. That guarantee is what makes these loans possible. The repayment terms are long enough for buyers to use the cash flow from the business to pay down the debt over time. In some cases this amounts to as much as 10 years. Though the average SBA 7(a) loan is only about $500,000<\/a>, the SBA program is large. In fiscal 2025 ending last October, the SBA backed $37.2 billion in 7(a) loans. In fiscal 2026, it has already backed $13.5 billion so far.<\/p>\n The SBA doesn\u2019t track how many deals rely on outside investors, but a 2023 study<\/a> of small business buyers suggests it is most. Roughly six in ten raise equity from others, often friends and family writing relatively small checks.<\/p>\n Grant Hensel found out about the change the hard way. Hensel, 32, is the founder and general partner of Entrepreneurial Capital<\/a>, a Chicago-based fund that has raised just over $12 million to support people buying small businesses. The fund has made four investments so far, three of them using SBA loans. He has also made at least eight personal investments tied to SBA deals.<\/p>\n The issue surfaced in February 2026 when one of Hensel\u2019s deals with a bank it often uses ran into problems. When the loan went through the SBA\u2019s approval system, it flagged a minority investor tied to a past loan that had gone delinquent or defaulted even though that same investor had participated in previous loans from the same bank. This time, the deal stalled in the system. Hensel was told that a recent update removed the distinction between the main borrower and passive owners. Everyone was grouped together. Rules that used to apply only to the borrower were now being applied to all owners.<\/p>\n That created a new kind of failure point. If any investor had been tied to a past SBA loan that went delinquent or defaulted, the entire deal could be blocked. Hensel says whatever is going on \u201cit\u2019s not written in the rules, and there\u2019s been no announcement.\u201d The retroactive element makes it worse. Investors who put money into deals years ago may now be judged under a standard that did not exist at the time.<\/p>\n The confusion runs deeper than one deal. Adam Markley<\/a>, 41, has spent nearly a decade buying and investing in small businesses. He is the founder and CEO of Prox Capital Group<\/a>, which raised $10 million (it\u2019s deployed $1.3 million of that in SBA deals, so far) to invest alongside operators and helps run back-office functions across a portfolio of companies. He has personally acquired multiple businesses, including four using SBA loans, and now invests as a minority partner in others.<\/p>\n Markley said the problem is not just the rule. \u201cThere\u2019s no clarity as to what the path is,\u201d he says. That\u2019s left lenders, buyers and investors to try and interpret what the SBA intended. In practice, banks are taking the safest route. If an investor triggers a flag in the system, the easiest fix is to remove them from the deal rather than fight for an exception.<\/p>\n That creates a risk most people never priced in. Many minority investors are friends or family members putting in small amounts to help someone buy a business. They are not operators. They do not sign guarantees. They do not expect to carry long-term liability. Markley pointed to the common case of a relative writing a small check. If the loan were to go sour, \u201cyour uncle who gave you $25,000 might not be able to get a Federal Housing Administration loan for his next house,\u201d he points out.<\/p>\n The lack of guidance leaves those investors in the dark. A deal can close without issue, then problems surface later when the next transaction runs through the system. Even a single late payment on a prior loan can trigger a flag. Investors may not know they are affected until they apply for an SBA, VA or FHA loan.<\/p>\n Both Hensel and Markley said their funds can adjust if the rule is formalized, but others may not be as flexible. The apparent rule change leaves many unwitting investors exposed.<\/p>\n Nathan Magnuson, 41, is an Army veteran and the founder and CEO of Leadership-in-a-Box<\/a>, a Dallas-based company that licenses training programs to other businesses. He spent most of his career in corporate leadership roles before starting the company in 2020. On the side, he invests some of his savings into private deals as a limited partner, including a small stake in Hensel\u2019s fund.<\/p>\n Until recently, Magnuson saw the risk in simple terms. He could lose the money he put in. That was it.<\/p>\n \u201cI had absolutely no clue,\u201d he states when asked if he knew about the new SBA imposed risk.<\/p>\n The exposure runs both directions. Magnuson may want an SBA loan for his own business one day, either to expand or make an acquisition. A problem in a deal he has no control over could affect that. At the same time, if his own business were to use an SBA loan and run into trouble, it could ripple back to other investors in Hensel\u2019s fund.<\/p>\n \u201cIt could affect my core business that I have 100% ownership of,\u201d he says.<\/p>\n That was never part of the calculation. Magnuson says he invests through funds because he does not have the time or expertise to evaluate deals on his own. He spreads his money across a handful of investments and lets the fund manager make the calls. The idea is to limit risk, not take on more of it.<\/p>\n Magnuson says that if the real change sticks, he will likely avoid SBA-backed deals altogether, especially in a fund structure where one bad outcome can affect every investor. \u201cI think the risk would far outweigh the reward,\u201d he says.<\/p>\n The SBA\u2019s new, punitive approach to minority investors in troubled 7(a) loans could have a big impact on the current $30 billion plus per year government backed loan program. Spooking potential lenders will mean lower demand, especially among smaller minority investors looking for yields from 10-15%. <\/p>\n It is possible that Trump’s SBA appointee Kelly Loeffler is trying to drive passive investors or even PE investors out of the program. SBA 7(a) loans were initially established after World War II to help small business owner-operators get funded, reducing the risk for traditional bankers. Ideally the same person running the business, would sign the guarantee, and live with the outcome. <\/p>\n Tightening up the rules could improve the SBA 7(a) loan program overall. However, ham-handed, middle-of-the-night, changes are never welcome.<\/p>\n More from Forbes<\/strong><\/p>\n ForbesNo AI Plan, No Loan. Small Business Lenders Force Main Street To Face The FutureBy Brandon Kochkodin<\/a>ForbesThese Florida Real Estate Hucksters Promised Financial Freedom. Now $100 Million Is MissingBy Brandon Kochkodin<\/a>ForbesSBA\u2019s New Rule Makes It Easier To Expand Small BusinessesBy Brandon Kochkodin<\/a>ForbesHow Small Businesses Are Really Using AIBy Brandon Kochkodin<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Kelly Loeffler has made restoring \u201cguardrails\u201d and increasing accountability in the SBA\u2019s 7(a) loan program a central theme…\n","protected":false},"author":2,"featured_media":861173,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[3094],"tags":[245140,51,3134,1239,245141,25210,2978,245139,1757,16,15],"class_list":["post-861172","post","type-post","status-publish","format-standard","has-post-thumbnail","category-entrepreneurship","tag-7a-loan","tag-business","tag-entrepreneurship","tag-eta","tag-loeffler","tag-sba","tag-small-business","tag-small-business-administration","tag-trump","tag-uk","tag-united-kingdom"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/116320213836828324","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/861172","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=861172"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/861172\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/861173"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=861172"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=861172"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=861172"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}