SBA Figures Show 21,881 Fewer 7(a) Loans in Fiscal 2026; Loans of $150,000 or Less Fell 40% Through June
The Small Business Administration approved 56,130 7(a) loans worth $32.4 billion in fiscal 2026, which ended September 30, American Banker reported on October 9, citing SBA figures.1 SBA's own year-end report for fiscal 2025 lists 78,011 approved loans for $37.24 billion.2 By our arithmetic, that is 21,881 fewer loans, a decline of about 28% by count and about 13% by dollars.
The loan-level data show the cuts, by count, were concentrated below $500,000. In SBA's public 7(a) file for the first nine months of fiscal 2026, approvals of $150,000 or less fell 39.9%, the largest loss by count, and approvals between $350,000 and $500,000 fell 64.3%, the steepest by percentage.3 In our view, the $150,000-and-under range is closest to where online term lenders, MCA funders and revenue-based financiers compete for the same borrowers.
On October 1 the program tightened again. SOP 50 10 8.1 raised the cash-flow coverage requirement for most change-of-ownership loans and added a quality-of-earnings report for acquisitions of $3 million or more.4 5 We expect three consequences for alternative lenders, none of them measured yet: more small borrowers leaving the SBA process without a loan, fewer SBA-financed exits for owners who plan to sell the business, and more acquisition capital needed outside the program.
What Alternative Business Lenders Need to Know
How much did 7(a) lending fall?
American Banker reported that both the count and the dollar volume of 7(a) approvals fell by double-digit percentages from the prior 12 months, and that dollar volume in the 504 program fell 9% to $7.1 billion.1 By our arithmetic, the average approved 7(a) loan rose from about $477,000 in fiscal 2025 to about $577,000 in fiscal 2026: fewer loans, each one larger.
The largest lenders shrank too. Live Oak Banking Company, the top 7(a) lender, fell 9% to about $2.6 billion, and most other top-10 lenders also declined, according to American Banker.1 SBA's fiscal 2025 report lists Live Oak at $2.85 billion.2
The nine-month numbers come straight from SBA's loan-level file. From October 1 to June 30, SBA approved 40,824 7(a) loans for $21.84 billion, against 61,270 loans for $27.63 billion in the same months of fiscal 2025: down 33.4% by count and 20.9% by dollars.3 Lumos Data published the same totals from SBA data.6 The file is public on data.sba.gov, so any credit team can download it and rerun these cuts.
The full-year declines, about 28% by count and 13% by dollars, are smaller than the nine-month declines, which by our arithmetic implies July through September ran closer to last year's pace; treat that as rough, because the two figures come from different sources and dates.1 2 3 The loan-level file stops at June 30, so the size bands below cover October through June.
Where in the loan-size range did the cuts land?
Not evenly. In the first nine months, approvals of $150,000 or less fell 39.9%, from 30,970 to 18,617, and approvals above $350,000 and up to $500,000 fell 64.3%, from 7,027 to 2,506. Loans between $150,000 and $350,000 fell 16.2%, and loans above $500,000 fell 14.5%.3 Both the shutdown and the fiscal 2025 rush, discussed below, make these nine-month declines look larger than the underlying trend; the sources do not say by how much in each band.
The $350,000 to $500,000 band is the one the June 2025 rules targeted directly, and its drop coincides with that change. SOP 50 10 8, effective June 1, 2025, lowered the 7(a) small-loan threshold from $500,000 to $350,000, and restored a 10% equity injection for startups and changes of ownership.7 A $400,000 request is now above the small-loan threshold. Part of the band's 64.3% drop is likely a base effect: the fiscal 2025 comparison months include the rush to close before those rules took effect.6
In our view, the drop under $150,000 matters most for this audience. That is the range where an SBA Express loan competes most directly with a working-capital advance or a short-term online loan, and loans of $150,000 or less lost about 12,000 approvals in nine months.3 In dollars the loss is smaller: that band fell from about $2.33 billion to $1.36 billion, roughly $1 billion of the $5.8 billion nine-month decline, while loans above $500,000 lost about $2.4 billion.3
Is this a collapse or a correction?
It is a correction from an unusual year, not a collapse. Lumos says fiscal 2025 was inflated by borrowers rushing to close before the June 2025 rules and by the October to November 2025 government shutdown, which pulled about $1.7 billion of volume into September 2025 and out of the first months of fiscal 2026; American Banker reported the same shutdown effect.6 1 Measured against fiscal 2024, nine-month dollar volume in fiscal 2026 was up 2.3%, and about 10% after Lumos adds the shutdown volume back.6 Loan counts, though, were down 18.1% against fiscal 2024, so the program is lending similar dollars through fewer loans.6
The administration's stated reason is losses. According to the Trump administration, Biden-era changes formalized in November 2023 led to a spike in loan losses, American Banker reported.1 Beyond Banks covered that side of the program on September 26, when an SBA inspector general report found that two nonbank SBA lenders accounted for 84% of defaulted loans in that lender channel; that report covers approvals from fiscal 2016 to 2023 and does not evaluate the November 2023 changes or the new small-loan rules.8
An adviser who works the program describes the result plainly. "I think objectively it became harder to get deals done," said Eric Rabinovich, founder of SBA Loan Lab, who added, "The credit box shrunk." He also said demand for SBA-backed financing remains high.1 Ben Johnston of Kapitus, an online small-business lender, said "the SBA needed to course-correct to bring the agency back to its historic levels of profitability."1 An SBA spokesperson did not respond to American Banker's request for comment by its deadline.1
What changed on October 1?
SBA Information Notice 5000-880695, published August 14, made SOP 50 10 8.1 effective for every application issued an SBA loan number on or after October 1, 2026.4 According to PilieroMazza's summary of the SOP, the main changes for borrowers are:5
A quality-of-earnings report, in addition to a business valuation, for acquisitions with a purchase price of $3 million or more.
A debt-service coverage requirement of 1.25x, up from 1.15x, for most change-of-ownership loans.
Projections generally can no longer make up a shortfall in historical cash flow.
Seller notes, third-party notes and other non-cash equity can be no more than half of the minimum 10% equity injection.
American Banker reported the same set of changes.1
In our view, the acquisition rules matter more to alternative lenders than the headline volume. A buyer who cannot show 1.25x on trailing cash flow, or who planned to cover more than half of the minimum equity injection with seller or third-party notes, needs a different structure.5 We expect some of that gap to be filled with more buyer cash, and some of it to become demand for non-SBA senior, mezzanine or bridge capital.
Will declined SBA borrowers turn to alternative lenders?
The data do not say, and we do not claim it. No source here measures how many borrowers declined or delayed by SBA lenders took an MCA, a revenue-based advance or an online term loan instead.
What the data do show is a longer trend. In the Federal Reserve's Small Business Credit Survey, the share of financing applicants that applied to an online fintech lender rose from 17% in the 2020 survey to 29% in the 2025 survey.9 That is a five-year trend in a convenience sample of 6,525 employer firms, fielded from September 3 to November 14, 2025, after the June 2025 rules but before SOP 50 10 8.1 took effect.9 It is not evidence about the SBA tightening itself.
Our expectation is that the small-ticket gap shows up first in alternative lenders' application flow, as more applicants who started an SBA loan and did not finish it. That is an expectation to test, not a finding. The quickest way to test it is in your own applications.
What should alternative lenders do now?
Add one field to every application: has the business applied for, or been declined for, an SBA loan in the last 12 months? Report it monthly. It is an early signal of displacement, not proof of it.
Recheck exits that depend on a sale. If a borrower plans to repay you by selling the business to a buyer using an SBA loan, test that buyer against 1.25x trailing coverage and the equity-injection limits before you count on the payoff.5
For acquisition finance, we expect some buyers to ask for capital that sits beside a smaller SBA loan; decide in advance whether you will take a junior position behind an SBA lender.
Watch SBA's approval reports and the next FOIA file update on data.sba.gov to see whether the steepest declines stay under $500,000.3
These are Beyond Banks' suggestions, not investment advice.
What the record does not yet show:
SBA's official fiscal 2026 year-end lender and activity files, which were not retrievable at the time of writing; the full-year totals here are SBA's figures as reported by American Banker.1
The size-band split for July through September 2026; the loan-level file runs through June 30.3
Whether borrowers who left the SBA process went to alternative lenders, banks without a guarantee, or did not borrow.
First-quarter fiscal 2027 change-of-ownership volume under the 1.25x rule.5
Our Opinion
The headline number undersells the small-loan story. A 13% dollar decline sounds like a normal correction, and against fiscal 2024, nine-month dollars were actually up 2.3%.6 The count tells a different story: the program made about 12,000 fewer loans of $150,000 or less in nine months, and the $350,000 to $500,000 band fell by nearly two-thirds, coinciding with the loss of small-loan treatment, though part of that drop is a base effect from the fiscal 2025 rush.3
We do not take a side on whether SBA should have tightened. Protecting the guarantee is a legitimate policy goal. Our point is narrower. By count, the program pulled back most from the small tickets that overlap with this industry. The nine-month comparison carries the rush and shutdown caveats above.
If small-ticket demand is shifting, alternative lenders are positioned to see it in their own applications before any survey does. Counting SBA-declined applicants is an early signal; paired with approval and payment data, it is how a lender would find out whether that is new demand, weaker credit, or both.
Catch Record Mismatches Before They Become Manual Reviews
Why a legitimate small-business application can stall before it reaches an underwriter. When an owner moves offices or changes a phone number and never updates the state registry, the application no longer matches Secretary of State records, and an automated check flags the mismatch for manual review.
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Headlines You Don’t Want to Miss
Fitch Ratings said U.S. trucking equipment ABS assets "remain vulnerable to operating cost pressures," especially diesel prices, MonitorDaily reported on October 8.10 EIA's weekly survey puts the U.S. on-highway diesel average at $6.199 a gallon for the week of October 5, up $2.488 from a year earlier.11 Fitch said cash-flow pressures are likely to be greatest among owner-operators and smaller fleets because they rely more on spot-market freight, where fuel costs are included in the negotiated all-in rate, and, citing Sandhills Global data, that used heavy-duty truck values modestly decreased in July.10 It does not expect equipment ABS rating changes, citing credit enhancement and quick deleveraging, the same reasoning it gave in July 2025.10 12
Our read: Fitch expects no rating changes; the stress it describes sits with small carriers, and, in our view, with the equipment lenders and freight factors that fund them.
Pagaya secured its first variable funding note facility, with nearly $700 million of funding capacity, from ATLAS SP Partners, the warehouse business majority owned by Apollo funds.13 14 The facility is committed and revolving and holds new personal loans while they season before securitization; CFO Jon Dobres called it "the first step in expanding our warehouse capabilities with banks and other financing partners."13 On October 5 Pagaya announced PAID 2026-6, a $600 million personal-loan ABS it described as AAA-rated, with 47 investors, which it said priced tighter than recent deals and took its 2026 issuance above $9 billion.15 The release does not disclose spreads or name the rating agencies.15
Our read: consumer credit, included as funding-structure context; if your warehouse line is uncommitted, a committed, revolving structure like this one is the comparison to bring to your next renewal.
In the first of a three-part series, FBT Gibbons attorney Jared M. Tully listed five litigation risks lenders face in a workout: informal emails, lapsed collateral perfection, borrower fraud, bankruptcy preferences and lender-liability counterclaims.16 "Preference exposure puts payments received in the 90 days before filing at risk of clawback," he wrote; the Bankruptcy Code's look-back extends to one year for insiders.16 17 He also warned that "a lien that was properly perfected five years ago may no longer be effective today"; under the UCC, a financing statement lapses after five years unless a continuation is filed in the final six months.16 18 The article cites no cases or data.16
Our read: funders taking daily remittances from a struggling merchant should know their 90-day exposure before a filing, not after; whether a given payment is a preference depends on the facts and on how a court characterizes the agreement.
Sources
1 American Banker | SBA starts new fiscal year with even tighter credit box (Oct. 9, 2026)
2 U.S. Small Business Administration | 7(a) Lender Activity Report, FY2025 year end (data as of Sept. 30, 2025)
3 U.S. Small Business Administration | 7(a) and 504 FOIA loan-level data, FY2020 to present (as of June 30, 2026)
4 U.S. Small Business Administration | Information Notice 5000-880695, Issuance of SOP 50 10 8.1 (Aug. 14, 2026)
5 PilieroMazza | Five SBA 7(a) Changes That Could Reshape Business Acquisitions (Aug. 24, 2026)
6 Lumos Data | SBA 7(a) Loan Data and Program Performance: FY2026 Analysis (2026)
7 Congressional Research Service | Changes to SBA Business Loan Program Policies in Early 2025, IN12549 (Apr. 28, 2025)
8 Beyond Banks | Two lenders drove 84% of SBA defaults (Sept. 26, 2026)
9 Federal Reserve Banks | 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (Mar. 3, 2026)
10 MonitorDaily | Fitch Ratings: U.S. Truck Equipment ABS Remains Vulnerable to Cost Pressures (Oct. 8, 2026)
11 U.S. Energy Information Administration | Gasoline and Diesel Fuel Update (week of Oct. 5, 2026)
12 Equipment Finance Advisor | U.S. Tariffs Add Pressure to Trucking Equipment ABS Asset Performance (July 29, 2025)
13 Pagaya via Business Wire | Pagaya Secures First Variable Funding Note Facility with ATLAS SP Partners (Sept. 29, 2026)
14 Pulse 2.0 | Pagaya Secures Nearly $700 Million Variable Funding Note Facility With ATLAS SP Partners (Sept. 2026)
15 Pagaya via Business Wire | Pagaya Issues AAA-rated $600 Million Personal Loan ABS Transaction (Oct. 5, 2026)
16 FBT Gibbons via JD Supra | Five Litigation Risks Facing Special Assets Officers in 2027 (Oct. 8, 2026)
17 Legal Information Institute | 11 U.S. Code 547, Preferences
18 Legal Information Institute | UCC 9-515, Duration and Effectiveness of Financing Statement
