How to Qualify for an SBA Loan Modification or Deferment (2025 Update)

(For 7(a), 504, and Microloans—not EIDL loans).

There’s an art and a science to negotiating a modification or deferment on your SBA debt. Think of it as a balancing act between you, your guarantors and the lender. You need to show that your business truly needs relief, while also proving that it’s strong enough to bounce back and continue paying.

Lean too far into distress, and lenders may deny the request outright, choosing instead to liquidate the business. The borrower may be left with no alternative but an offer in compromise to avoid bankruptcy.

On the other hand, if you present too much cash flow, they’ll likely insist on regular payments and shut the door on relief options. The sweet spot lies in the middle—painting an honest picture that demonstrates temporary hardship while also reinforcing your long-term viability.

So how does an entrepreneur thread that needle and successfully secure a modification or deferment?

SBA Loan Modifications

Sometimes, it isn’t a single bad month that trips up a business—it’s bigger, ongoing challenges. Maybe sales have slowed because your market shifted, a competitor undercut your prices or rising costs have squeezed your margins. In other cases, the original business plan simply didn’t play out as expected, and the company now faces a long stretch of uphill work just to stay afloat.

In situations like these, an SBA loan modification can provide breathing room. This isn’t forgiveness—nothing is being written off. The business owner still intends to repay every dollar borrowed, plus interest. What changes is the structure of the repayment: perhaps stretching the loan over a longer term, pushing a balloon payment to the maturity date or negotiating a lower interest rate. Each of these tools lowers the monthly debt service, making it possible for the business to survive and stabilize.

Update for 2025: The SBA’s revised SOP 50-10-8 (effective June 1, 2025) has made the process more rigorous. Lenders are now required to apply tighter underwriting standards and more conservative financial projections.

So, if you just ask for a modification without supporting it, the bank is likely to be conservative and deny the request. But if you submit detailed cash flow forecasts and pro formas, you strengthen your case and give the lender evidence that repayment under modified terms is realistic.

SBA Loan Deferments

Sometimes the problem isn’t that your business model is broken—it’s that you’ve hit a temporary cash crunch. Maybe sales dip in the off-season, a big customer pays late or you’ve had to stock up on inventory ahead of a busy period. Whatever the reason, the business is solid overall—it just needs a short-term lifeline.

That’s where an SBA loan deferment comes in. A deferment presses “pause” on some or all of your payments so you can catch your breath and get back to operating in the black. Unlike a modification, which restructures your loan for the long haul, a deferment is designed to be temporary—usually 30–90 days, though some lenders may extend it longer.

There are two common types of deferments:

• Interest-only Deferment – You keep paying interest, while the principal portion of the loan is temporarily put on hold.
• Complete Payment Deferment – Both principal and interest are paused until the deferment period ends.

Which one you qualify for depends on the type of loan you have and how your business is performing.

What’s new in 2025: The SBA has rolled out updated guidance that gives lenders more flexibility to grant deferments on a case-by-case basis for 7(a) and 504 loans.

Step 1: Get Clear on What Kind of Help You Really Need

Before you start filling out paperwork or making calls, pause and figure out what kind of relief will actually help. Are you facing a short-term squeeze—like an unexpected sales dip or a customer who paid late? In that case, a deferment might be all you need to catch up.

Or is your business dealing with something deeper—like permanently higher costs or a long-term revenue slide? If so, a modification will likely serve you better.

What you don’t want to do is chase the wrong solution. Asking for a 90-day break when your problems are structural will only delay the inevitable. Likewise, requesting a modification when you’re simply in a seasonal slump may waste time and weaken your credibility with the bank.

If you’re not sure which bucket you fall into, it’s worth getting professional input before making your decision.

Step 2: Build a Package the Bank Will Take Seriously

Once you know which kind of relief you’re after, the next step is to prepare a solid package for your lender. This isn’t just paperwork—it’s your chance to make your case.

Here’s the tricky part: you need to show that you can’t afford your full payments right now without giving the impression that your business is on its last legs. It’s a balancing act, and it’s one of the reasons many borrowers get denied.

If you’re pursuing a deferment, the documentation list is fairly straightforward:

• Two years of tax returns

• Personal financial statements
• Balance sheets

• Accounts Payable and Accounts Receivable schedules

• Income statements

The bank will use these to decide whether your situation looks temporary and whether you’re likely to bounce back once the deferment ends.

They’ll be looking at three things in particular:

• Business performance – Will revenue pick up enough to cover expenses after the deferment?

• Collateral value – Has the value of your collateral held steady, or is it declining?

• Your track record – Do you have a history of being candid and reliable with your lender?

Modification Package

A modification request requires all of the above—and then some. Because you’re asking for long-term changes to your loan, lenders take a closer look at your future. The problem? They often make their own projections without your input, and those projections can be overly pessimistic.

That’s why your package needs to include:

• Letter of Explanation–A clear, professional letter that explains your circumstances, outlines the relief you’re requesting and shows why your business can meet the new terms.

• Cash Flow Pro Forma–A month-by-month projection for at least the next 12 months. This is your chance to take the guesswork out of the bank’s hands and show them exactly how you’ll make the modified payments.

Update for 2025: Under the SBA’s revised SOP 50-10-8, lenders are bound by more traditional underwriting standards. That means they’ll scrutinize your eligibility, equity and projections more closely than they have in recent years. A strong, detailed package is no longer optional—it’s essential.

Final Thoughts

Yes, the bar is higher in 2025. But at the same time, the SBA has introduced new relief pathways—especially for disaster loans and COVID-EIDL borrowers—so there are more tools available if you know how to use them. The key is preparation: choose the right type of relief, build a credible case and back it up with numbers that prove your business can keep going.

And remember, you don’t have to do this alone. If you’re unsure which path to pursue or how to present your case, we can help you chart the right course and advocate for the best outcome.

Special Note: EIDL Borrowers

While this article focuses on SBA-backed bank loans (7(a), 504, and Microloans), there is one recent update relevant to EIDL borrowers.

The SBA officially ended its Hardship Accommodation Plan (HAP) in March 2025. However, it’s still offering a one-time, six-month payment reduction of 50% for existing EIDL loans under $200,000 that were current as of that date. Borrowers must apply via the MySBA Loan Portal.

Loans above $200K are not automatically eligible and must be serviced via email request. Interest continues to accrue during this period, which means higher balloon payments later.

If you’re unsure whether your loan qualifies—or how to combine EIDL relief with a restructuring of your other SBA-backed obligations—professional guidance can help you avoid missteps and strengthen your overall position.