A First-Timer’s Deep Dive: What the SBA Lending Establishment Is Saying Behind Closed Doors - And What That Means for Your Next Deal

When I registered for the 2025 NAAGL Spring Conference in Salt Lake City, I had one goal in mind: to get clarity.

• Clarity on how SBA lending is actually changing.
• Clarity on how banks are responding.
• Clarity on what these shifts mean for business buyers like the ones we work with every day.

I’ve been working in the SBA space for years. Our firm has helped dozens of clients secure millions in SBA-backed loans. But even with that experience, this was my first time at NAAGL, the National Association of Government Guaranteed Lenders. And let me tell you, this event is the real deal. It’s not fluff, it’s not surface-level. It’s where policy gets dissected, credit trends are forecasted, and real lenders talk candidly about what’s working, what’s not, and what’s next.

The experience was eye-opening.

This wasn’t a conference for handshakes and cocktail hours (although there were plenty of those too). This was a gathering of the people who actually move SBA lending forward: regulators, credit officers, SBA administrators, and seasoned professionals who have been shaping this industry for decades.

I left Salt Lake City with a notebook full of insights, a refreshed perspective on where the SBA program is heading, and an even deeper appreciation for how buyers can position themselves to win in today’s environment.

In that spirit, I’ve put together a full breakdown of the 30 most important insights I took away from NAAGL 2025 - broken down by theme, with commentary on what each one means in practice. If you’re a business buyer planning to use SBA financing in the coming months, or if you’re an advisor who wants to stay ahead of the curve, this one’s for you.

I. SBA Rules in 2025: Clearer, Firmer, and More Enforced

Let’s kick things off with what everyone at NAAGL seemed to agree on: the new SBA rules are no joke. There’s a new energy in the room - one that says, ‘It’s time to get serious.’

Across panel after panel, seasoned credit officers and SBA insiders repeated a clear theme: the 7(a) program is maturing, and that means greater structure, clearer expectations, and less room for improvisation.

For buyers, that might sound intimidating. But here’s the silver lining—this kind of clarity is what many of us have been asking for. When the rules are known, the path becomes navigable. It’s not about guessing anymore. It’s about knowing exactly what lenders expect and executing against that standard with confidence and precision.

New Equity Injection Requirements

SBA is putting its foot down. Going forward, borrowers must inject at least 5% of the total project cost from their own liquid funds. This is non-negotiable. Seller financing can still cover the other half of the 10% equity injection—but only if it’s on full standby. No more zero-down creative structuring.

Seller Retained Equity = Seller Guarantee

This change sent ripples through the room. If a seller wants to retain even 1% of equity, they’re now required to personally guarantee the loan for two full years. That completely reshapes how rollovers are negotiated—because sellers looking for a passive stake now face real risk.

Citizenship and Immigration Requirements Apply to Everyone

This one caught some people off guard. The new SOP makes it clear: every owner must be either a U.S. citizen or a lawful permanent resident. Not just 20%+ owners—everyone. That has big implications for syndicates, search fund LPs, and employee equity arrangements.

Licensing Must Align with Ownership

Banks are now enforcing tighter alignment between state licensing and SBA loan eligibility. If the business requires a license to operate, expect banks to look for that license holder to also be a meaningful owner—or to find creative but compliant ways to meet that standard.

Clearer Rules = Faster Deals

Here’s the silver lining: banks are moving faster. With less gray area to interpret, they can evaluate deals more confidently. The ambiguity that used to stall deals is fading away.

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II. Credit Conditions: A Market on Alert

If there was one part of the conference that felt like sitting in on a weather forecast before a major storm, it was the credit risk sessions. You could feel the mood shift—more measured, more serious. Lenders aren’t panicking, but they are tightening up. Rising defaults, especially in newer vintages and smaller loans, are becoming impossible to ignore. What’s happening now is a recalibration. Credit teams are getting more cautious, and the margin for error is shrinking. Deals are still moving, but the bar has been raised. If your deal isn’t buttoned up—financially, structurally, and strategically—it might not get through the next layer of review.

Defaults Are Rising in the Sub-$500K Space

There’s no sugarcoating it. Startup loans under $500K are defaulting at much higher rates than ever before. Lenders are starting to view these loans more like venture capital than credit.

Variable-Rate Loans Are Getting Hit Harder

Default rates on variable-rate SBA loans exceeded those of fixed-rate by 123 basis points in 2024. With rising interest rates and tighter margins, it’s not hard to see why.

Most Defaults Happen Between Months 18–30

Here’s an important nuance: businesses aren’t usually defaulting in the first year. It’s happening after that honeymoon period, when cash flow doesn’t ramp as expected and reserves are depleted.

The Lumos Index Is Flashing Yellow

Brett Caines presented the Lumos Credit Index, which is sitting at 139—well above historical norms. It’s a forward-looking signal of higher default risk, and banks are listening.

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III. Deal Structure in 2025: Raising the Bar on Alignment and Accountability

This section hit home for a lot of people—myself included. As someone who’s helped buyers structure dozens of SBA deals, I’ve seen all kinds of capital stacks: some elegant and well thought out, others that felt like Jenga towers waiting to topple. In years past, lenders might have gone along with layered seller notes, passive equity holders, and cash-light buyers. Not anymore. The narrative at NAAGL was unmistakable: deal structure must reflect operational intent. That means buyers need to show skin in the game, a credible plan for running the business, and a structure that doesn’t rely on too many what-ifs. It’s about clarity, credibility, and alignment. If your deal feels overly engineered, it’s likely to get reworked—or rejected.

“Airball” Deals Are Getting Flagged

Deals that rely heavily on seller notes, layered earnouts, and minimal buyer equity were called out as “airballs”—deals with no real grounding in financial reality. They’re becoming much harder to get through underwriting.

Search Funds Still Have a Path—But It’s Narrower

Let’s be clear: search funds aren’t going away. But they’re under more scrutiny. Lenders want to know how involved the sponsor will be. Passive operators are getting flagged. Banks want to see day-one commitment and operational intent.

Alignment Matters More Than Leverage

The new focus is less about how much capital is being raised, and more about how aligned the buyer is with the deal. Are they prepared to run the business? Do they understand the industry? Do they have a plan beyond closing?

LP Money Must Be Properly Structured to Count

Here’s a big one: investor capital is no longer assumed to count toward liquidity or equity injection unless it’s documented, irrevocable, and SBA-compliant. Sloppy LP agreements are causing real problems at underwriting.

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IV. Loan Volume: Surprisingly Resilient

There’s this idea floating around—especially on Twitter and in some investor circles—that SBA lending is on the ropes. High interest rates, tighter guidelines, and default fears were supposed to crush deal volume. But what I heard at NAAGL painted a very different picture. Volume isn’t falling. It’s shifting. Banks are still lending aggressively, but the profile of deals getting through the pipeline has changed. There’s a flight to quality. That means strong businesses with good cash flow, experienced buyers, and solid working capital plans are not only surviving—they’re thriving in this environment. It’s not about volume disappearing. It’s about it concentrating in the hands of those who are best prepared.

SBA Lending Volume Is Still Strong

Despite all the headwinds, Q2 2025 was the second-highest quarter for SBA lending in history. Buyers who are prepared are still getting deals done.

Banks Are Filtering Harder at the Top of the Funnel

We heard this from multiple lenders: they’re doing more pre-screens and killing weak deals early. That means fewer headaches down the road—but higher expectations up front.

Smaller Deals Require a Stronger Narrative

If you’re doing a deal under $1M, you need to come with a clear plan. Show cash flow, demonstrate operational experience, and explain your post-close strategy.

Clear Guidelines Are Helping Good Deals Close Faster

With less back-and-forth on ambiguous rules, we’re seeing faster timelines—but only for buyers who bring their A-game.

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V. Franchise Lending: Back on Track

Franchise lending got its groove back this year, and you could feel the optimism from the banks that specialize in it. For years, franchise deals were bogged down in eligibility confusion. With the reinstatement of the SBA franchise directory, we’re finally seeing a return to structure, clarity, and speed—three things buyers (and lenders) love to see.

The Franchise Directory Is Back

This is a game changer. For years, franchise deals were mired in eligibility confusion. Now, there’s a go-to list that lenders can rely on.

Not All Franchises Are Included

That said, the directory isn’t universal. Do your homework early to confirm SBA eligibility before going under LOI.

Franchise Lending Is Heating Up

Banks are leaning back into franchise deals. With eligibility clear and timelines more predictable, franchises are becoming popular targets again.

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VI. SBA Administrator’s Strategic Direction

You could hear a pin drop during the Administrator’s keynote. There weren’t any bold announcements or flashy headlines, but what we did get was something better: substance.

The SBA is clearly focused on keeping the engine running—processing loans quickly, getting capital into the hands of buyers, and holding lenders accountable to higher credit standards. But beyond that, there was a tone of strategic intent. The agency wants to channel capital into industries that matter—manufacturing, logistics, and critical supply chains. This is about national competitiveness, not just access to capital. That’s a big shift, and one buyers should pay attention to.

Back to a Zero-Subsidy Program

Guarantee fees are being realigned to make the SBA 7(a) program self-sustaining again. No more subsidizing high-risk deals.

Simplification Is the Watchword

The Administrator wants to cut red tape and streamline the process—especially for banks trying to approve quality borrowers quickly.

Support for Core Industrial Sectors

Expect preferential treatment for deals in manufacturing, logistics, and supply chains—anything that strengthens domestic industry.

SBA Volume Remains Robust

The agency processed 26,000 loans in the new administration’s first 100 days—proof that the program is still humming.

The SBA Is Getting More Professional

This was the underlying tone of the keynote: expect higher standards, more robust underwriting, and less room for gamesmanship.

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VII. What Buyers Need to Do Differently in 2025

So here’s where the rubber meets the road. After everything I heard at NAAGL—from the policy changes, to the default data, to the war stories from bank credit officers—it all boils down to this: if you want to get funded in 2025, you need to run your acquisition process like a pro. That means having your documents ready, your business plan clear, your equity structured properly, and your post-close plan rock solid. The SBA market isn’t hostile. It’s just discerning. And that means buyers need to rise to the occasion. If you can present a compelling, credible, and well-capitalized plan, there’s still plenty of capital ready to meet you at the finish line.

Have a Plan. A Real One.

Gone are the days of generic projections and buzzword-heavy pitch decks. Lenders want to see a 100-day plan, a staffing strategy, and a clear use of funds.

Match Your Background to the Business

You don’t need to have run the exact same business before—but you do need to show that you’re ready to lead it.

Demonstrate Day-One Liquidity

You must prove you’ll have cash reserves on Day 1—enough to handle hiccups, hiring, and working capital.

Surround Yourself with SBA Experts

Your attorney, CPA, and financing advisor should all know SBA inside and out. The margin for error is too small for generalists.

Operate Like a Pro from the Start

Treat your deal like it’s already yours. Lenders notice when buyers behave like owners, not opportunists.

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Final Thoughts

The 2025 NAAGL Spring Conference confirmed something I’ve sensed for months: this market is evolving fast. SBA financing isn’t just about accessing capital. It’s about presenting yourself as a responsible, capable owner with a clear path forward.

Deals are still getting done. But only when they check all the boxes.

At Pioneer Capital Advisory, we’ve built a process that helps business buyers navigate this landscape with confidence. We’re not just helping you fill out forms—we’re helping you build a fundable, financeable, and fundamentally sound acquisition plan.

If you’re preparing to buy a business and want to do it the right way, we’d love to help.

Before I Go...

If there’s one thing I want you to take from this: don’t mistake insurance for paperwork.

It’s not a checklist item. It’s the final underwriting layer of your deal. It’s also the only part of the transaction designed to protect you—when the lawyers, the lenders, and the sellers are no longer in the picture.

If you’re about to acquire a business, don’t just protect the loan. Protect the life you’re building.

I’m here when you’re ready.

​jelani@pioneertribeinsurance.com​
​www.pioneertribeinsurance.com​
​LinkedIn – Jelani Fenton​

I also run a joint venture with Joe Thomas - it's called SMB Business Plans, which specializes in producing high-quality, lender-compliant business plans for acquisition financing.

We focus on:

• Narrative positioning aligned with SBA underwriting frameworks
• Pro forma financial modeling and 24-month operating plans
• Risk management and contingency mapping

Learn more: www.smbbusinessplans.com​
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Thanks for reading.

Matthias Smith

Founder, Pioneer Capital Advisory

Author, The Buyer Advocate

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.