Did the SBA just slam the door on investor equity in self-funded search?

🚨 Did the SBA just slam the door on investor equity in self-funded search? They seem to be applying a “one strike and you’re out" rule to minority investors. WHAT HAPPENED: Historically, anyone who personally guaranteed an SBA loan and became delinquent or in default was barred from getting another SBA loan. This makes sense. But now, it seems like the SBA has expanded that rule to ALSO cover minority investors (who are not signing the personal guarantee and do not have any operational control). This is not a change the SBA has publicly announced. We found out about it the hard way on a recent deal when the SBA told the bank that 100% of beneficial owners cannot be people who participated in past SBA-backed deals that have gone into delinquency or default. We had to remove two small investors from our fund to get the deal done. This is apparently related to an ETRAN update, in which the system no longer distinguishes between the majority owner/operator/guarantor and minority investors when applying the eligibility rules. The rule appears to be: If you invest $1 into an SBA-backed acquisition, and that deal goes bad, you can never participate in an SBA transaction again. Ever. This is true even if you're an LP in a fund investing in SBA deals, and one of their SBA investments goes belly up. (Needless to say: Entrepreneurial Capital LPs, we are pausing SBA investments while we work to get more clarity here; fortunately our non-SBA pipeline is robust) WHAT IT MEANS IF THIS IS TRUE: Minority investing in SBA deals becomes much more difficult. The risk for an investor is dramatically higher than before. And even those investors willing to take the risk are apparently banned for life once a single deal goes bad. The SBA deals with the most outside equity are the larger transactions, businesses with $1m+ of EBITDA. If this is true, competition for those businesses will likely decrease, because SBA debt will effectively only be usable by people with enough money to do the entire equity injection themselves. That means a smaller buyer pool, and lower multiples. (Favoring well-capitalized buyers at the expense of those with less personal capital) MY QUESTION: Is this what others are seeing, or is there a bigger picture here?