The SBA’s decision to expand lending capacity presents one of the most significant opportunities for banks serving the small business market in years.
By increasing the maximum loan amount (the combined 504 and 7(a) loan limit has increased to $10 million, with each program individually capped at $5 million) lenders can pursue larger borrowing relationships, expand into new market segments and support growing businesses that may have previously exceeded SBA lending limits. The SBA has further proposed raising the cap to $10 million per program—an increase which, if enacted, would give banks even greater capacity to pursue larger financing relationships while offering borrowers expanded access to the capital needed to fund growth. Therefore, the institutions that stand to benefit most won’t simply be those that originate more loans; they will be those whose underwriting, operations, technology and governance are prepared to support sustainable growth.
An Important Note on Sequencing of 7(a) and 504 Loans
To obtain the maximum available financing under both programs, the loans must be processed sequentially, with the 7(a) loan processed first and the 504 loan second.
Here’s why
The statutory limitation for the 7(a) program encompasses outstanding SBA-guaranteed obligations across all SBA loan programs, while the 504 limitation applies only to outstanding 504 debentures. Under 15 U.S.C. § 636(a)(3)(A), a 7(a) loan may not exceed $5,000,000, and the total outstanding SBA-guaranteed balance across all SBA loan programs for a single borrower, including affiliates, generally may not exceed $3,750,000, or $4,500,000 for a qualifying export loan.
The 504 program limits are established separately under 15 U.S.C. § 696(2)(A)(i), and the aggregate outstanding SBA debenture balance for a single borrower, including affiliates, may not exceed $5,000,000 for standard projects or $5,500,000 for projects involving small manufacturers or qualifying energy and renewable fuels projects.
Growth brings opportunity and greater exposure
The appeal of expanded SBA lending is clear. Higher lending limits allow banks to compete for larger commercial relationships while continuing to benefit from the SBA guarantee. This expanded lending capability is enabling many banks to finance businesses that might otherwise fall outside their traditional lending appetite.
But larger loans also mean larger exposures.
Even with government guarantees mitigating some risk, increased loan sizes naturally elevate a bank’s overall credit exposure. Institutions should view the expanded lending limits not simply as permission to lend more, but as an opportunity to evaluate whether their risk appetite, credit policies and underwriting standards remain aligned with a larger and potentially more complex portfolio. In many ways, the expansion serves as a timely reminder that growth strategies and risk management should evolve together.
Underwriting must keep pace
The lending environment has also changed considerably in recent years.
Following the unprecedented volume of Paycheck Protection Program (PPP) lending during the pandemic—and the fraud, defaults and heightened regulatory scrutiny that followed—banks face increased expectations around underwriting discipline and portfolio management. As institutions pursue larger SBA opportunities, they must ensure sufficient focus on credit quality, documentation and sound underwriting practices.
This makes now an ideal time for banks to revisit questions such as:
Answering these questions before expanding a portfolio can help institutions grow confidently while avoiding unnecessary risk.
Operational readiness Is just as important
Strong underwriting alone is not enough.
As loan volume and average loan size increase, operational processes are placed under greater strain. Loan boarding, servicing, documentation, exception management, portfolio reporting, reconciliations and customer support all become more critical and any existing inefficiencies may become more visible.
Banks should use this moment to assess whether their SBA lending operation can support increased activity efficiently and consistently. Process bottlenecks, manual workarounds, staffing gaps or fragmented technology may have been manageable with a smaller portfolio but can quickly become obstacles as lending activity grows.
Finding the Opportunity
For institutions that are operationally prepared, the expanded lending limits are more than a policy change; they represent an opportunity to win relationships that previously fell outside the reach of many SBA programs. Simply put, operational readiness should be viewed as a competitive advantage.
AI can help but governance matters
Artificial intelligence is also beginning to reshape the SBA lending landscape.
Many institutions are exploring AI to streamline underwriting, improve document review, automate workflows and enhance operational efficiency. Used thoughtfully, these technologies can help banks scale their lending operations while improving consistency and reducing manual effort.
However, AI should never be viewed as a substitute for sound governance.
Banks need clear oversight of how AI is deployed, how decisions are validated, how models are monitored, and how regulatory expectations are addressed. Incorporating AI into the lending process without appropriate governance can introduce new operational and compliance risks, particularly in highly regulated lending environments.
As AI adoption accelerates across financial services, institutions should ensure innovation and governance advance together. If you’re unsure where your organization stands, our free online AI Governance Assessment can provide a practical first step to evaluating your organization’s readiness and establishing your next steps:
Preparing for sustainable growth
The SBA’s expanded lending capacity represents a meaningful opportunity for banks looking to grow their commercial portfolios and better serve expanding businesses. But long-term success will depend on more than simply increasing loan limits.
Institutions that take the time to strengthen underwriting practices, evaluate operational readiness, modernize supporting technology, and establish appropriate governance will be positioned to capitalize on the opportunity while managing risk effectively.
For banks considering how to prepare for this next phase of SBA lending, experienced advisors can provide valuable perspective and guidance. Reach out if you’d like to explore how we can support your readiness in this new age of opportunity.
