You’re getting a rare opportunity to check in on my email. I’ve never met Cynthia, but her email brought up that age-old question, “What constitutes a Small SBA 7(a) Loan?”

CYNTHIA. Richard, I’ve underwritten a Small 7(a) Loan for $250,000 and was surprised when the internal compliance reviewer wrote me up. I don’t know what your experience with compliance officers is, but ours is as picky as a cranberry merchant in December. The loan amount is $250,000 so there’s no reason I should have been written up.

ME. Cynthia, I’m not familiar with that post-holiday simile but I get the picture: Your compliance officer seems way too picky for your taste, but from your comment, we need to have a conversation. Here’s the deal:

The SOP distinguishes between a Standard 7(a) Loan and a Small 7(a) Loan. And you’re not alone in thinking that a Standard 7(a) Loan is for more than $350,000 and a Small Loan is for less than $350,000. A lot of SBA underwriters think that’s the “be-all-end-all.” But if you hear that, go wash your ears out right away because that’s just plain old hogwash. SBA would never make it that simple.

Yes, a Standard 7(a) Loan is indeed greater than $350,000. But the universe of Standard 7(a) Loans also includes loans for more than $350,000 that don’t meet SBA’s minimum acceptable FICO® Small Business Scoring Service SM Score (SBSS) credit requirement for 7(a) Small Loans. So a 7(a) loan of $1 million might be a “Small Loan” if it doesn’t have an acceptable SBSS Score. (SOP 50 10 6, pg. 247;  pg. 252)

In fact, the SBSS score is so critical that SBA requires that all Small Loan applications begin with a screening for that score.

Wrapping Up: Picky, But Right. Cynthia, I’m so glad you contacted me, because in your case, your compliance officer might be picky, but he’s right. Here’s why: The SBSS score for your loan was 140, less than what SBA requires for processing it as a Small Loan. To be sure, the loan might be SBA eligible, but it’s not eligible to be underwritten as a Small Loan. So it’s not eligible for the abbreviated credit analysis allowed on page 254 of the SOP or for other goodies such as Equity Requirements for 7(a) Small Loans on page 255 or Collateral Requirements for  7(a)  Small Loans on page 258.

I relish getting emails with questions about challenging issues that need clarification. Keep on filling my mailbox.

Richard Jeffrey
Senior Associate
Head Underwriter