Best Practices for SBA Loan Disbursements

Disbursing funds for an SBA 7(a) loan isn’t just about getting the money to the Borrower. It’s about doing it right, so you stay well within SBA compliance rules.

SBA’s SOP 50 10 8, effective June 1st, 2025, includes specific guidance on disbursement rules and required documentation. Here’s what you need to know, so you’ll stay compliant every step of the way.

1. The loan must be disbursed within 48 months of SBA approval; any undisbursed balance after 48 months will be automatically cancelled.

   
   

   For lines of credit, SBA considers the loan fully disbursed upon the first draw.

   
   

   If more time is needed, the Lender must submit an “exception to policy” request (see page 9 of the SOP) that includes:

   • The SBA loan number

   • The reason or justification, such as a project delay

   • How any cost increases are to be covered

   • The number of additional months requested

     
     

2. Lenders must document every disbursement on an SBA-guaranteed loan, using SBA Form 1050 at the first disbursement, and attaching documentation for each subsequent disbursement to that Form 1050.

   
   

   Documentation must show:

   • Who received the funds

   • The amount and date of the disbursement

   • The purpose of the disbursement, which should match the ETran Terms & Conditions

   Acceptable documentation includes:

   • Joint payee checks

   • Paid receipts or invoices marked “paid”

   • EFT confirmation and a copy of the corresponding invoice

     
     

3. Lenders must retain proof that the loan was used according to the approved use of proceeds. This includes:

   • Cancelled checks

   • EFT records

   • Paid invoices or receipts

   However, if the loan is for standard working capital such as payroll or utility bills, Lenders aren’t required to provide detailed documentation.

   
   

4. Lenders may use an escrow account for up to five (5) business days to facilitate closing, but should not report the loan as disbursed on Form 1502 until all funds leave escrow. Any guaranty fees and interest charges may apply only to funds actually disbursed.

   
   

5. A loan is considered fully disbursed when the Borrower has access to all loan proceeds and is able to use the funds per the ETran Terms & Conditions.

   
   

For the Lender, this means the loan is now ready for sale on the secondary market, if they so choose.

With all that in mind, here are a few additional tips.

• Clarify terms early, and ensure Borrowers understand the 48-month disbursement window – including the implication of delays.

• As you know, we love checklists, so it won’t surprise you that we recommend using a Disbursement Checklist that includes key steps, such as Form 1502 signing, invoice verification, and file retention.

• For loans in escrow, set reminders to track the five-day time limit.

• Document, document, document! Keep receipts, payment confirmations, and audit trails, even for partial disbursements.

• Audit your files on a regular basis to confirm that they include all that documentation.

Compliance in following SBA disbursement requirements is an essential part of protecting your loan portfolio and ensuring that your Borrowers receive the funds they need, when they need them.

Need some help setting up checklists, reviewing your files for accuracy, or helping your team understand the new SOPs? Give us a call at 877-576-0819, or drop us a line through our contact form here. We’re standing by to offer SBA training support, answer your SBA compliance questions, and provide general assistance with

concerns.