NEW SBA Loan Citizenship Requirements

100% US CITIZEN OWNERSHIP REQUIRED FOR SBA LOAN ELIGIBILITY

Effective March 7, 2025, the U.S. Small Business Administration (SBA) has introduced critical changes to the eligibility criteria for its 7(a) and 504 loan programs, specifically targeting the citizenship status of business owners. These updates are essential for entrepreneurs, brokers, and financial professionals involved in SBA lending, as adhering to these new guidelines will be key to avoiding delays and ensuring compliance.

Key Changes to SBA Loan Eligibility

Previously, businesses could qualify for SBA loans even if up to 49% of their ownership was held by foreign investors. However, that flexibility has been eliminated. Under the new policy:

Businesses must be 100% owned by U.S. citizens, U.S. nationals, or Lawful Permanent Residents (LPRs) to qualify for SBA 7(a) and 504 loans.
Any ownership interest by foreign nationals, regardless of size, renders the business ineligible for SBA financing.
Applicants must certify that no beneficial owners fall under the category of ineligible persons.
Lenders are required to document and input at least 81% of beneficial ownership data into the SBA’s E-Tran system to verify borrower eligibility.

Who Is Now Ineligible?

The updated SBA guidelines clearly state that the following individuals are prohibited from owning any portion of a business applying for SBA loans:

Foreign nationals
Individuals granted asylum
Refugees
Visa holders
DACA recipients
Undocumented immigrants

Even a 1% ownership stake by an ineligible person disqualifies the business from receiving SBA financing.

New Requirements for Lenders

SBA lenders must now follow stricter verification and certification processes to confirm borrower eligibility. These include:

Including borrower certifications in the loan application, affirming that no beneficial owner is ineligible.
Collecting alien registration numbers from any LPR owners.
Verifying an LPR’s status through U.S. Citizenship and Immigration Services (USCIS) using SBA-approved procedures.
Certifying in the E-Tran system that no beneficial owner is ineligible.

These measures must be followed rigorously until the SBA updates its application forms to reflect these changes.

Impact on Business Owners

This policy shift has immediate and far-reaching implications for business owners and loan applicants:

Businesses with any ownership by an ineligible person are automatically disqualified from obtaining SBA financing.
Companies with silent partners or minority foreign investors must reevaluate their ownership structures or explore alternative funding sources.
Both applicants and lenders share the responsibility of ensuring compliance with the new rules.

For small businesses, especially startups or those with diverse ownership arrangements, these changes may require careful restructuring to maintain eligibility for SBA loans.

Why the SBA Implemented These Changes

According to SBA Administrator Kelly Loeffler, these reforms aim to prioritize U.S. citizens and lawful permanent residents in accessing federal funding. The policy shift also aligns SBA procedures more closely with federal immigration compliance regulations.

What Business Owners Should Do Now

If you are considering applying for an SBA loan, take the following steps to prepare:

Audit Your Ownership Structure: Identify all individuals or entities with direct or indirect ownership, regardless of the percentage.
Verify Immigration Status of All Owners: Confirm that every owner is a U.S. citizen, U.S. national, or lawful permanent resident. Collect the required documentation, such as passports or green cards, in advance.
Restructure Ownership if Necessary: If your current ownership structure includes ineligible individuals, consider reorganizing before applying or exploring alternative financing options.
Communicate with Your Lender Early: Disclose your ownership structure upfront so your lender can provide appropriate guidance and help prevent delays.

Final Thoughts

This policy update represents one of the most significant changes to SBA lending practices in recent years. While the new requirements may limit access for certain business owners, they also ensure that SBA funds are directed toward businesses that meet strict citizenship and residency standards. Moving forward, brokers, lenders, and applicants must treat ownership status as a critical eligibility factor—on par with financial qualifications such as credit history, business tenure, and annual revenue.