SBA Lending Changes in 2025: A Founder’s Guide to Refinance or Close Cleanly

If you’re staring at a short runway, clarity beats bravado. This guide gives you a straightforward way to decide whether to pursue refinancing or preserve cash and wind down on your terms. 

Summary

• The U.S. Small Business Administration (SBA) is updating “size standards,” which could make more companies eligible for SBA-backed programs. Eligibility is not the same as approval—lenders remain cautious.
• Tariffs and other policy shifts can lift costs and blur forecasts; stress-test margins before taking new debt.
• Many small firms carry meaningful debt; lower interest rates help, but they do not repair weak unit economics.
• If financing is unlikely or the model remains fragile under stress tests, preserve cash for an orderly wind-down.
• Starcycle supports triage, compliance, stakeholder communications, and step-by-step wrap-up—starting at $299, tailored to your needs, no hidden fees.

What’s changing in lending

SBA size standards

The SBA uses revenue or headcount cutoffs to define which companies are ‘small.’ At publication, the SBA’s proposed rule would raise monetary-based size standards across 263 industries, potentially making more companies eligible for SBA programs.

Why this matters: A broader definition may open the door to SBA programs, but banks and nonbank lenders still apply their own credit policies. Expect more documentation and slower timelines. If runway is measured in weeks, build a plan that does not depend on fast approvals.

Tariffs and cost volatility

New or expanded tariffs raise the total cost to bring goods to you (often called ‘landed cost,’ which includes product, freight, and duties). Small-business groups report that tariffs introduced in 2024 and 2025 are already adding 5–10% to landed costs in categories like electronics, textiles, and machinery, squeezing margins for import-reliant firms.

Why this matters: A 5–10% increase in landed cost can erase thin margins. If a modest cost shock pushes your gross margin negative, adding debt increases risk rather than buying time.

Debt loads and rates

Many small businesses hold six-figure debt. Interest rates may ease, but underwriting remains selective. As of late 2024, roughly 40% of small firms reported carrying over $100,000 in debt, much of it taken on to manage rising costs or uneven cash flow—a signal that refinancing may offer relief for some but not structural fixes for all.

Why this matters: Refinancing helps only if the total cash impact—after fees, covenants, and reporting requirements—is clearly positive. Do not assume a lower headline rate equals safety.

Key terms to know

• Underwriting: A lender’s review of your finances to decide approval and loan terms.
• Covenants: Rules in a loan agreement (for example, minimum cash or performance ratios). Breaches can trigger penalties or defaults.
• DSCR (Debt Service Coverage Ratio): Cash available for debt payments divided by the required payments. A DSCR above 1.0 means you can cover payments.
• Working capital model: A short-term cash plan showing money in and out—ideally weekly—so you can spot shortfalls early.
• Landed cost: The total cost to get a product to you, including purchase price, shipping, insurance, and duties.

A practical decision framework

Use this six-question triage. Count the “yes” answers.

1. Can we reduce burn (net cash out per month) to roughly 60% of today without breaking core delivery?
2. Do we have a credible refinancing path (at least a 50% chance of a term sheet based on actual lender feedback)?
3. Do gross margins stay healthy if input costs rise 5–10%?
4. Do current loan covenants allow time to improve without frequent breach risk?
5. Is revenue diversified (no single customer above ~35%)?
6. If we operate another 90 days and still miss, will we retain enough cash for final payroll, taxes, and dissolution costs?

If you decide to wind down, protect your future self

An orderly wind-down is a professional act. It takes care of people, closes obligations, and preserves your reputation for the next build.

A simple 30/60/90 timeline

Days 0–7: Stabilize cash

• Freeze nonessential spend.
• Reserve funds for final payroll, taxes, and dissolution costs.
• Assign a decision owner (final calls) and a project owner (execution).

Days 7–21: Map and communicate

• Build a stakeholder list: employees, investors, customers, vendors, landlords, lenders.
• Draft messages for each group—dates, next steps, and support options.
• Inventory contracts, auto-renewals, leases, and software subscriptions.
• Plan data retention and customer data exports.

Days 21–45: File and settle

• Submit required filings: CTA/BOIR (Corporate Transparency Act/Beneficial Ownership Information Report), state notices, and license updates or cancellations.
• If applicable, follow workplace notice rules in your jurisdiction.
• Negotiate vendor settlements; plan for asset sales or assignments.

Days 45–90: Close and archive

• Run final payroll and benefit terminations on schedule.
• File final tax returns; close accounts; cancel registrations and licenses.
• Archive intellectual property (IP) and key records in a structured, searchable format.
• Complete the public dissolution.

Communications that reduce friction

• Employees: Share the rationale, exact dates for benefits and pay, and reference support.
• Investors: Provide a concise timeline, actions to minimize residual risk, and what you learned.
• Customers and vendors: Give service end dates, data-export instructions, and final invoice or return procedures.

Sequence matters: Close payroll, taxes, and accounts in the right order to avoid penalties and surprise invoices.

Frequently asked questions

Do the new SBA size standards mean I will get a loan?

Not automatically. You may become eligible to apply, but lenders still decide based on their criteria. Expect more documentation and longer timelines.

How should I factor tariffs into my decision?

Model at least two cost shocks—+5% and +10% to landed cost. If margins turn negative under either scenario, more debt likely increases risk.

Is refinancing better than preserving cash for shutdown costs?

Refinance only if the after-fee cash improvement is clear and durable under stress tests. If not, protect cash for a clean exit.

What happens if we run out of cash during closure?

You risk late payroll, unpaid taxes, penalties, and damaged relationships. Early planning prevents this outcome.

Can ownership structure affect SBA options?

It can. Lenders review ownership and eligibility rules carefully. Ask early about any cap table issues to avoid wasted time.

How Starcycle Can Help

• Paperwork made simple: We organize, clarify, and track every filing—from dissolutions and BOIR (Beneficial Ownership Information Reports) to cancellations, notices, and tax paperwork.
• Stakeholder communications: Clear, compassionate messaging for employees, investors, customers, and vendors.
• Debt and contract wrap-up: A step-by-step order of operations to reduce fees and close accounts correctly.

Ending well is part of building well. Whether you refinance or wind down, a methodical plan preserves dignity, limits risk, and gives you momentum for what comes next. Starcycle walks with you through both paths—steady, organized, and human.