For SBA lenders
Short answer
A material adverse change is a significant negative shift in the borrower's or business's financial health or operations that could reasonably impact repayment ability, requiring the lender to re-evaluate the loan.
Lenders are expected to exercise prudent lending standards up to the point of loan disbursement. If a material adverse change occurs (e.g., significant revenue decline, loss of a major customer, new substantial debt, key personnel departure) that would alter the original credit decision, the lender must reassess the loan and its viability. This may lead to new conditions, re-underwriting, or even withdrawal of the commitment.
After authorization but before closing a $1,000,000 acquisition loan, the target business loses its largest client, which accounted for 30% of its revenue, and the seller's projected cash flow for the next year drops by 40%. This is a material adverse change requiring the lender to re-evaluate the deal's viability and likely requiring new underwriting or deal restructuring.
Insider move
Lenders have an ongoing obligation to monitor for material adverse changes. Ignoring such changes and proceeding to close without proper re-evaluation can be deemed imprudent lending and lead to a guaranty denial if the loan subsequently defaults.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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