SBA Changes Lending Policy, Reducing Small Business Loan Access
Sen. Ed Markey and Rep. Nydia Velázquez introduced a bill to restore legal permanent residents' eligibility for SBA loans after Kelly Loeffler, head of the SBA, stated SBA loans "are for American citizens, and we're unapologetic about it."
Objective Facts
The SBA revised Standard Operating Procedure 50 10 8 effective March 1, 2026, pursuant to Executive Order 14159 ('Protecting the American People Against Invasion'), requiring that 100% of all direct and indirect owners be U.S. citizens or nationals. This policy shift, combined with increased credit score requirements and stricter underwriting, resulted in a 46% decline in SBA lending from June to August 2025. In March 2026, Administrator Loeffler expanded the citizenship restrictions beyond the flagship 7(a) and 504 programs to encompass all SBA-guaranteed loans. On June 12, 2026, Democratic senators Ed Markey and Nydia Velázquez, both ranking members of their respective chambers' small-business committees, introduced legislation to restore eligibility for legal permanent residents.
Left-Leaning Perspective
In December 2025, Senator Patty Murray (D-WA), Vice Chair of the Senate Appropriations Committee, and Ranking Member Edward Markey (D-MA) led 18 Democratic colleagues in writing to SBA Administrator Kelly Loeffler to oppose the citizenship requirements, noting these restrictions prevent loans to small businesses with any noncitizen ownership, including DACA recipients and lawful permanent residents, even when majority U.S. citizen-owned. In their letters, Senators Markey and Velázquez wrote the policy amounts to "demonizing immigrant communities and picking winners and losers, rather than basing lending decisions on a small business's ability to repay a loan." House Democrats led by Rep. Nydia Velázquez pointed out the SBA has changed its citizenship guidance four times since March 2025, creating confusion and uncertainty for lenders and borrowers, and argued that at a time when Trump's tariff policies are pressuring small businesses, the SBA should be reducing barriers rather than expanding them. On June 12, 2026, Markey and Velázquez introduced legislation to restore legal permanent residents' SBA loan eligibility. Democratic critics emphasize the policy reverses a quarter century of SBA practice allowing majority-owned U.S. citizen businesses with some noncitizen ownership to access loans. Advocates including funding specialist Eda Henries warn the restrictions will push more business owners toward predatory lending options like merchant cash advances, with some companies failing to grow or even launch.
Right-Leaning Perspective
On March 6, 2025, SBA Administrator Kelly Loeffler announced the agency would implement citizenship verification to "put American citizens first" and ensure "zero taxpayer dollars go to fund illegal aliens". In subsequent announcements through March 2026, Loeffler justified the expanded citizenship restrictions by stating the SBA's limited lending authority, capped annually by Congress, requires prioritizing American citizens who create jobs domestically. The administrator pointed to an audited case from June 2024 where the prior administration approved a six-figure loan for a business 49% owned by an immigrant without legal status as evidence of prior policy laxity. SBA statements emphasized that with SBA lending authority capped annually by Congress and facing record demand for capital, the agency must prioritize American citizens. Loeffler characterized the prior administration's guardrails as "lax," noting that under Biden-Harris, the SBA approved a $783,000 loan for a business 49% owned by an illegal alien in June 2024. The policy revisions cite Executive Order 14159 titled "Protecting the American People Against Invasion" as justification. One notable criticism from within the lending industry came from SBA lender Chris Hurn, who called the restrictions a "massive contradiction," questioning how foreign investment can be acceptable for large business while restricted for small business, though this criticism does not constitute full endorsement of the Democratic position.
Deep Dive
The policy evolution began April 22, 2025, when the SBA announced changes to its Standard Operating Procedures (SOP 50 10 8) for 7(a) and 504 loan programs, effective June 1, 2025, which limited eligibility, tightened underwriting standards, and increased lender responsibility. By summer 2025, these initial changes—along with increased credit score minimums—contributed to a 46% decline in SBA lending from June to August 2025. In February 2026, the SBA issued revised Standard Operating Procedure 50 10 8 pursuant to Executive Order 14159 ('Protecting the American People Against Invasion'), effective March 1, 2026, imposing an absolute 100% U.S. citizenship and residency requirement. On March 9, 2026, Administrator Loeffler announced the expansion of these citizenship restrictions from the core 7(a) and 504 programs to all SBA-guaranteed loans, including Surety Bond and Microloan programs. The Democratic critique focuses on the fact that this policy reverses roughly a quarter century of SBA practice allowing businesses majority-owned by U.S. citizens, nationals, and lawful permanent residents to access loans. Lending analysts note that some borrowers previously eligible for SBA loans will no longer qualify, particularly in areas with high concentrations of immigrant-founded businesses. The policy creates substantial compliance burdens for lenders required to certify citizenship of all direct and indirect owners, which could deter lenders from originating loans in businesses with complex ownership structures, further reducing overall lending. While 4% of FY2025 SBA loans involved permanent residents—a relatively modest share numerically—these loans were transformative for the companies receiving them. Funding professionals warn the restrictions risk pushing excluded entrepreneurs toward expensive merchant cash advances and other predatory lending, potentially depressing new business formation.