In early March, the Small Business Administration (SBA) made one of the most significant policy changes in recent years by revising the eligibility criteria for 7(a) and 504 loans, shifting the eligibility requirement for small businesses from 51% to 100% U.S. citizen-owned. In line with the Administration’s broader immigration reform efforts, this change means that federal funding will now be available only to U.S. citizens and lawful permanent residents.
However, there are likely larger repercussions that will emerge from this change, including trickle-down effects on the broader small business community. What do business owners need to know, and how should they prepare in the weeks and months ahead as they assess their capital needs?
Reviewing the SMB Landscape
Small and medium-sized businesses (SMBs) face a significant challenge: access to capital.
Although recent easing of regulatory standards and a pro-business agenda have led SMBs to feel more optimistic about obtaining loans, the fluctuation of tariff decisions, higher interest rates, and banks’ tightening of credit have introduced uncertainty that undermines their confidence.
Successful SMB owners have always needed to look beyond the noise to make strategic plans, but now many face the potential loss of a vital and longstanding source of funding.
SBA loans, although somewhat cumbersome in their application process, offer numerous benefits. Regulated by the U.S. Small Business Administration, these loans have interest rates tied to a base rate that varies with the market, providing favorable terms for working capital. This funding supports job creation, equipment and facility purchases, and various growth initiatives. In 2024, the SBA provided $56 billion in loans to over 103,000 U.S. small businesses, including assistance for disaster recovery.
However, recent changes have impacted the lending landscape. Previously, SMBs with up to 49% foreign ownership could receive funding. As of early March, this flexibility has been completely removed. Now, all owners must be 100% U.S. citizens, nationals, or lawful permanent residents. Although existing loans should not be affected, future disqualifications or delays are expected.
A Drag on Innovation
Immigrants are highly entrepreneurial, and their impact on our country has been significant. A 2024 report from the American Immigration Council found that immigrants or their children founded 46 percent of all Fortune 500 companies.
Lendio believes in making access to capital more inclusive for all SMBs. It’s both a moral imperative and a sound business decision. Currently, one in four businesses in the United States is founded by immigrants, many of whom rely on SBA loans and employ a significant number of U.S. citizens. Furthermore, between 5% and 10% of businesses have some level of foreign ownership, which creates additional ripple effects from policy changes. Restricting immigrants’ access to capital could delay job creation and growth opportunities, potentially leading to an economic downturn.
A friend of mine recently came to Lendio to get help securing an SBA loan. He has two businesses he owns: one with 100% ownership from US citizens, and then a subsidiary with only 1% ownership from a non-US citizen. Because his application happened after March 7, his application was declined by the lender stating the fact that they need both entities to be ‘co-owners’ on the loan. We are now working on other potential loan options to help fill the gap.
Planning Their Next Move
These policy changes highlight the need for businesses with diverse ownership structures to review their eligibility for financing and consider alternative funding options if necessary.
Businesses that are still planning to apply for an SBA loan should assess their ownership structure and confirm the immigration status of all owners. While complicated, there are also numerous avenues to pursue if they want to restructure their ownership to continue pursuing SBA loans. With the careful consultation of professional experts, including attorneys and accountants, gifting ownership to an individual, transferring ownership through a merger or acquisition, or leasing the business are all options.
Fortunately, there are numerous alternative financing options available that offer flexibility, including bank loans, non-bank lenders, and embedded financing. Platforms like Lendio provide a centralized way for small business owners to explore these options through a marketplace that offers a range of options, making it faster and easier to apply for capital.
This is a defining moment for the lending industry. As traditional pathways close, we must build new ones driven by innovation, inclusivity, and a commitment to serving the small businesses that power our economy. Let’s rise to meet that need.
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