SBA Expands Restrictions on Noncitizen Participation in Loan Programs

If any co-owner of your business is not a United States citizen, your next application for an SBA-backed loan or bonding assistance may be denied. Access to capital is a critical component of growth for many small businesses, particularly those that rely on government-backed lending programs.  

Recent policy changes from the U.S. Small Business Administration (SBA), however, may significantly affect how certain businesses approach financing and structure their ownership. 

The SBA recently expanded its prohibition on noncitizen participation in federal lending programs to include the Surety Bond Guarantee Program and the Microloan Program, following an earlier rule restricting access to the agency’s flagship 7(a) and 504 loan programs. The expanded rule broadens the categories of individuals who may be ineligible to participate in SBA programs and could affect businesses with noncitizen ownership or international connections. 

For companies that rely on SBA-backed loans or bonding assistance, these developments highlight the importance of understanding how ownership composition, corporate structure and financing strategy may affect eligibility.  

Now is the time to ask whether your ownership structure puts your financing plans at risk. In this blog, Richards Rodriguez & Skeith reviews what you need to know and how a small business law firm can play a key role in helping businesses navigate these issues while planning for growth and capital needs. 

The Expanded Scope of SBA Financing Eligibility Restrictions

Historically, SBA lending programs have served as a major financing pathway for businesses that may not qualify for conventional loans. The agency reduces lender risk by guaranteeing a portion of eligible loans, thereby expanding access to capital. 

Under the expanded rule, the SBA has extended its citizenship restrictions to include additional programs beyond the traditional lending framework.  

As a result, individuals who may now be ineligible to participate in SBA programs include:

• Lawful permanent residents (green card holders)
• Individuals granted asylum or refugee status
• Visa holders and other non-immigrant aliens
• Individuals covered by the Deferred Action for Childhood Arrivals (DACA) policy
• Individuals whose primary residence is outside of the United States
• Businesses organized or incorporated outside the United States
• Individuals or entities appearing on federal sanctions lists

These restrictions now apply not only to major loan programs but also to smaller financing tools and bonding programs that many businesses rely on for operational growth. 

Implications for Ownership and Corporate Structure

Perhaps the most significant aspect of the policy change is that ownership composition may directly impact eligibility for SBA-backed financing.  

Businesses may become ineligible if any portion of the company is owned by an individual who falls into one of the restricted categories. 

This raises important considerations for businesses with:

• International founders or partners
• Foreign investors or venture capital participation
• Minority ownership by noncitizens
• Parent companies organized outside the United States
• Complex corporate structures involving multiple entities

In fiscal year 2025, the SBA approved more than 3,300 loans to businesses partially owned by lawful permanent residents, representing approximately four percent of total approvals. Under the new rules, businesses with similar ownership structures may face new barriers when seeking SBA financing. 

Companies that anticipate relying on SBA-backed loans may therefore want to review their corporate structure and ownership arrangements before pursuing financing. 

A small business law firm can assist businesses in evaluating how ownership arrangements intersect with federal program eligibility and identifying potential risks early in the planning process. 

Impacts on Contracting and Project-Based Businesses

The expanded restrictions may also affect businesses that rely on the SBA Surety Bond Guarantee Program, particularly in industries where bonding is required to compete for projects. 

Construction contractors, subcontractors, and businesses seeking government contracts often rely on surety bonds to demonstrate financial capacity and reliability of performance. The SBA’s bond guarantee program allows qualifying businesses to obtain bonding even if they might not otherwise meet traditional underwriting requirements. 

If a company’s ownership structure now affects eligibility for this program, businesses competing for bonded work may face new challenges securing project financing or qualifying for certain contracts. 

Companies in construction, infrastructure development, and other project-based industries may therefore want to review how their ownership composition could affect both bonding eligibility and broader financing strategies. 

Considerations for Businesses Seeking Capital

These regulatory changes highlight a broader strategic question for businesses: how to align financing goals with ownership and investment strategy. 

For companies seeking outside capital, particularly from international investors, the availability of SBA financing may now be a factor in structuring deals or forming new entities.  

In some cases, businesses may need to consider whether SBA eligibility is an important component of their long-term financing plan. 

Potential considerations may include: 

Evaluating Ownership Structure

Businesses may want to review whether current or proposed ownership arrangements could affect eligibility for SBA programs. 

Planning for Future Financing Needs

Companies that anticipate pursuing SBA-backed loans may benefit from evaluating eligibility requirements early in their growth cycle. 

Understanding Lender Compliance Obligations

Lenders participating in SBA programs are required to verify ownership and citizenship status. This means businesses should expect additional diligence during the application process. 

Exploring Alternative Capital Sources

If SBA financing is unavailable, businesses may need to consider other funding options, such as conventional bank loans, private lenders, or equity investments. 

A small business law firm can help companies assess these considerations and develop strategies that align financing opportunities with long-term business objectives. 

Looking Ahead in Small Business Capital

The SBA’s recent policy changes reflect a broader shift in how the agency is approaching eligibility requirements for federal lending programs.  

While the full impact of these rules will likely continue to develop, businesses that rely on SBA financing should act now and set a 30-day deadline to review their capitalization table and bonding needs. Taking this proactive, time-bound step can help ensure ownership and structure do not put future financing or project opportunities at risk. 

The intersection of ownership structure, regulatory compliance and financing strategy will become increasingly important when pursuing growth capital. 

Richards Rodriguez & Skeith is a business law firm focused on the small-to-mid-market business community in Central Texas. If you need to review these issues early, seek the appropriate legal guidance and better position yourself to navigate evolving regulatory requirements.