By David Etter and Cole Frick, Wipfli
Here’s what credit unions need to know.
SBA lending rules have changed under the current administration as the SBA moves to strengthen borrowing requirements. Since 2025, the SBA has heightened standards for the “credit elsewhere” rule and sunset SBSS scores as a tool to evaluate 7(a) small loans.
As a result, credit unions that offer SBA loans need to update their compliance policies or face blowback from federal regulators. Keep reading to find out more about the new rules and how your credit union should take action to get into compliance.
Credit Unions Should Be Aware of Two Major SBA Lending Rule Changes
Credit unions need to know that the SBA has shifted requirements for the credit elsewhere rule – which essentially states that SBA loans can only go to borrowers who can’t find a commercial loan on reasonable terms – to refocus on core underwriting fundamentals. The SBA is also sunsetting using SBSS scores to evaluate borrowers for 7(a) small loans, which means you’ll now have to do a more thorough underwriting process for those loans.
The credit elsewhere rule changed in 2025
Under the credit elsewhere rule, lenders must prove their borrowers can’t find a standard commercial source of credit before obtaining an SBA loan. In the early 2020s, the SBA began allowing a simplified check box exercise to serve as proof. But as of 2025, the SBA has reverted to mandating a traditional underwriting approach that includes a rigorous, narrative-driven credit analysis.
To satisfy credit elsewhere rules, your credit union must now once again:
-
Affirmatively prove that your borrowers could not obtain credit elsewhere, through documented and borrower-specific analysis.
-
Provide evidence to support your conclusion, including evaluation of cash flow, collateral, guarantor strength and alignment with your own credit policy.
As of 2026, lenders can no longer use SBSS scores to evaluate 7(a) loans
The FICO small business scoring service (SBSS) score is essentially a credit score for a business that incorporates credit history, financial data and other metrics. Historically, the SBA has allowed lenders to use the SBSS score as an automated prescreening tool to evaluate borrowers applying for SBA 7(a) small loans of $350,000 and below. However, as of March 2026, this is no longer the case.
-
As a result, your credit union will now have to underwrite 7(a) small loans using generally accepted commercial practices, relying on documented, supportable credit conclusions that align with your internal credit policies.
-
A minimum debt service coverage ratio of 1.10x is now required, supported by financial statements and projections.
-
Eliminating the SBSS score as a prescreening tool means credit unions and other lenders may lean more on their own internal credit models and standards, which will introduce more variability into the process.
-
It is now essential to have well-developed credit files to clearly justify your lending decisions. Weak or unsupported underwriting may increase your risk of regulatory compliance challenges.
How Should Credit Unions Comply With the New SBA Lending Requirements?
Risk and compliance leaders at credit unions, like chief credit officers and chief risk officers, should take action to align their internal compliance efforts with new SBA standards. Key action steps include:
1. Review the current version of the SBA SOP
Carefully review the latest version of the SBA SOP. Consider how the shift toward narrative-driven credit elsewhere analysis and the sunsetting of SBSS scores will change your current credit processes.
2. Bring in a third-party compliance advisor to review your processes
Work with a third-party compliance advisor to review your current loan process. Your advisor will be able to identify gaps in underwriting, credit policy alignment or documentation, along with other risks that you might miss if you rely on an entirely internal review.
3. Implement any necessary compliance changes
Based on your compliance review, make any necessary changes to your existing processes. This may require additional training. For example, to meet the new credit elsewhere standard, you’ll likely need to update training, procedures and policies for your loan underwriting team.
Be sure that everyone involved in your SBA loan process is aware of the new rules and any resulting policy changes you make. This shouldn’t just be a one-time memo either. You’ll need to communicate regularly until your whole team is comfortable with your new loan review and compliance process.
4. Update your training programs
Update your existing training to keep yourself and your team up to date with compliance requirements. Offer ongoing training as needed, drawing from existing training resources offered by groups like the National Association of Government Guaranteed Lenders.
5. Conduct ongoing loan reviews
Regularly review your existing loan portfolio to assess risks and help ensure you maintain compliance. This review should be tailored toward existing, mature loans to evaluate capital at risk.
An effective loan review process includes a credit risk evaluation, reviewing credit and loan approval documents, and carefully examining your borrowers’ cash flow. You should also confirm you’re in compliance with your own internal policies as well as SBA requirements.
Conducting regular loan reviews will also strengthen your overall credit quality and help your credit union more effectively manage risk. Given the complexity of the rules involved, you’ll often benefit from working with a third-party advisor to support this process.
What’s Next?
To kick off a review of your compliance and loan approval processes, talk to a third-party advisory firm that knows credit unions and regulatory compliance. Your advisor will help you identify gaps in your processes, mitigate risk and satisfy regulators.
Connect with Wipfli to learn more.
