SBA Loans Now Off Limits For Firms With Non-Citizen Managers

The Small Business Administration (SBA) put new rules into effect on June 1 for getting government-backed small business loans. But one part of the new rules has gone largely unnoticed.

Broadly speaking, the agency says the changes were made to make the loans safer for taxpayers. In 2024, the SBA’s flagship 7(a) program posted a $397 million loss. That was its first negative year in more than a decade. Most of the revisions bring the program back in line with how it worked during President Trump’s first term. That includes stricter credit checks, higher down payment requirements, and tougher rules on how much cash flow a borrower needs to qualify. The SBA said it was ending what it called an “era of irresponsible lending” and blamed looser standards under President Biden for last year’s losses.

A brand new rule now requires businesses to be 100% owned by U.S. citizens or those who have been permanent residents for at least six months to qualify for an SBA loan. This is not a return to Trump-era policy but a fresh restriction. Buried in the fine print is a second, less obvious change. As Ray Drew, a managing director for SBA lending at Truliant Federal Credit Union in Winston-Salem, North Carolina, points out, the same citizenship rule also applies to key employees who manage the day-to-day operations of the business, not just the owners.

The SBA uses the term “associate” to determine eligibility. That includes anyone who owns 20% or more of the business, but also officers, directors, and employees who manage daily operations (making them a “key employee”). If any of those people are on a visa, are recipients of Deferred Action for Childhood Arrivals (DACA), refugees, or otherwise lack permanent legal status, they’re considered an “ineligible person” and the business is subsequently barred from receiving SBA backed loans.

You don’t need to be a U.S. citizen or green card holder to legally work in the country. Many people work here on temporary visas or with special permissions like DACA or refugee status. But under the new SBA rule, even if someone is legally allowed to work, their immigration status can still disqualify the business from getting a loan if they’re a manager.

This change could affect a significant number of businesses. A 2023 report from the Immigration Research Initiative, a nonpartisan group that studies the role of immigration in the economy, found that 14% of all managers in the United States are immigrants (the 14% figure doesn’t distinguish between immigrants who are and aren’t citizens or permanent residents). That includes jobs like financial managers, healthcare administrators, and food service managers. These are the kinds of roles that would qualify as key employees under the SBA’s new rules.

Even if the employee is moved out of that role, the business must wait six months before applying for a loan (to meet the provision’s six-month lookback period). The only way to avoid that delay is to fire the employee.

That puts some businesses in a tough spot. They can either let go of a trusted manager or give up access to affordable government-backed financing.

For now, businesses and buyers applying for a 7(a) loan need to be aware of more than just who owns the company. They also need to check the immigration status of the people who help run it.

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