SBA Creates Waiver Process for Investors With Past Government Loan Default Ties

The Small Business Administration issued a two-page guidance document on May 28, 2026, that establishes a waiver process for investors who have been involved in past government loan defaults. The document was signed by Kelly Loeffler, Administrator of the Small Business Administration. The guidance expires on June 1, 2027.

It applies to the SBA’s 7(a) and 504 loan programs, which were expanded to make up to $10 million in guaranteed loans available. Earlier in 2026 the SBA stopped approving loans to businesses with an investor who had previously backed any business that defaulted on an SBA loan.

Forbes first reported the agency’s rejection of loan guarantees for businesses with owners or investors who had backed a defaulted SBA-guaranteed loan in March 2026.

The SBA’s traditional rule had barred only the borrower who signed the personal guarantee from future SBA loans after a default. The policy change was made at some point after President Donald Trump returned to the White House in 2025. To qualify for a waiver an investor must have no ownership stakes of more than 20% in any company that defaulted on an SBA loan or any other federal government loan.

The investor cannot have been a loan guarantor or co-borrower on any SBA or government loan that defaulted. The investor also cannot have had any control over the business that defaulted on a past SBA or government loan. Once the three threshold criteria are met, the SBA evaluates the full circumstances surrounding the loss on a case-by-case basis.

Waiver applications are evaluated by the SBA’s Fraud Risk Framework. Before granting or denying a waiver the SBA considers an investor’s history with 7(a) and 504 loans, the number and percentage of defaulted SBA loans, when those loans defaulted, and the investor’s capital relative to the requested loan amount.

The SBA framed the investor crackdown as an effort to clean up the lax “Do What You Do” underwriting policies of the Biden years to restore program integrity.

The SBA stated that the case-by-case waiver procedure is designed to support greater access to capital for small businesses. Lynn Ozer, president of Pennsylvania-based MultiFunding LLC, said the guidance makes clear the agency is addressing non-controlling minority equity investors.

Eric Pacifici, a partner at SMB Law Group, said the guidance is a net benefit because it clarifies the landscape for investors.

Scott Oliver, a partner at Indianapolis-based law firm Lewis Kappes, asked how many waivers will actually be approved.