SBA Ban on Foreign Ownership

Effective March 1 of this year, the Small Business Administration (“SBA”) implemented a significant change to its loan eligibility requirements, barring green card holders and other non-U.S. citizens from applying for or receiving SBA loans. The new rule applies immediately to the SBA 7(a) and 504 loan programs. Beginning April 1, 2026, the policy will be extended to the Surety Bond and Microloan programs.

Under recent, prior SBA guidance, a small business could still remain eligible for SBA financing if up to 5% of its ownership was held by a foreign national or lawful permanent resident. That policy has now been fully rescinded. Under the revised rule, 100% of all direct and indirect owners of an SBA loan applicant must be U.S. citizens or U.S. nationals with their principal residence in the United States.

According to the SBA, this policy change is intended to ensure that limited SBA lending capacity is used to prioritize U.S. citizens.

Practical Implications for Your Business:

Prospective and current borrowers with any of these SBA-backed loans must take note.  This policy change immediately disqualifies both current and prospective applications of any business with foreign ownership from SBA loan programs, no matter how small the foreign ownership interest. While the new rule does not invalidate SBA loans that have already been approved and closed, existing borrowers should carefully review their loan documents to ensure they have a strong understanding of any covenants triggered by change-of-ownership events and any other compliance related issues.

The SBA’s revised ownership rules also heighten transaction risk for mergers and acquisitions involving businesses with existing or anticipated SBA loans. SBA loan documents often restrict direct and indirect ownership changes, and commonplace deal terms—such as rollover equity, minority issuances, or post‑closing incentive arrangements—can trigger consent requirements or undermine SBA eligibility. Non‑compliant, foreign ownership changes may jeopardize the SBA guaranty, prompting lender objections, additional conditions, or default remedies, including acceleration. Early ownership diligence and careful deal structuring are therefore critical.

Next Steps:

Given the rigidity of the new rule, understanding and managing risk is imperative. Businesses should consider taking the following steps:

• Map ownership structures carefully.
• Review existing SBA loan agreements for ownership, transfer, and consent provisions.
• Engage legal counsel experienced with SBA loan programs, which operate under district rules.

For questions regarding foreign ownership, SBA eligibility, or how this policy may affect your business, please contact Paul Hawkins or G. Wythe Michael.