The U.S. Small Business Administration issued a policy notice on February 2, 2026, barring Lawful Permanent Residents from owning any share of businesses that seek SBA-backed small business loans starting March 1, 2026.
The change makes Green card holders ineligible to hold even a minority stake in an SBA-financed borrower, and it extends through ownership layers to cover direct and indirect owners.
Under the transition rule in the notice, any loan involving an LPR owner must receive an SBA loan number before March 1, 2026 to remain eligible under the previous standards.
Lawful Permanent Residents, commonly known as green card holders, are people who are legally authorized to live and work in the United States indefinitely. Many start or buy small businesses and rely on SBA-backed small business loans because the federal guarantee can help businesses qualify for credit they might not otherwise obtain on comparable terms.
SBA-backed lending sits at the center of many mainstream financing plans, from opening a first location to buying equipment, refinancing debt, or purchasing property. When eligibility changes, it can affect pending deals, ownership negotiations, and the order in which lenders collect documentation and submit requests to obtain loan numbers.
Cutoff date and transition rule
The SBA tied eligibility in this case to a firm cutoff date rather than a long phase-in, which lenders and borrowers often treat as a practical dividing line between transactions far enough along to proceed and those that must be reworked.
For businesses already in the pipeline, the timing of when an SBA loan number is assigned can determine whether the old or new ownership rule applies. Lenders treat the SBA loan number as a milestone in SBA processing.
Scope of the ownership restriction
The policy arrives through a formal notice and revisions to the agency’s lending rulebook, Standard Operating Procedure (SOP) 50 10 8. An SOP is the set of instructions lenders use to underwrite and close SBA-guaranteed loans, and it functions as the operational standard for what lenders must verify before the SBA will provide its guarantee.
The notice sets a “100% Citizenship Requirement,” saying 100% of all direct and indirect owners of a small business applicant must be U.S. citizens or U.S. nationals residing in the United States or its territories. That structure makes citizenship or nationality a threshold eligibility condition across the entire ownership chain.
In an excerpt the SBA included in its policy notice dated February 2, 2026, the agency wrote: “Legal Permanent Residents (LPRs) will not be eligible to own any percentage interest in an Applicant/Borrower, OC [Operating Company], or EPC [Eligible Passive Company].”
Those terms describe different entities and roles the SBA treats as part of a single eligibility picture. The “Applicant/Borrower” is the business applying for and receiving the SBA-backed financing, while an “Operating Company” refers to the business running day-to-day operations, and an “Eligible Passive Company” is a related entity that can hold assets such as real estate and lease them to the operating business in common SBA structures.
By specifying Applicant/Borrower, OC, and EPC, the SBA signaled that it will look through common multi-entity arrangements rather than focusing only on the name on the loan application. The “direct and indirect owners” language also targets layered ownership, where an entity owns part of another entity, and individuals may hold interests through holding companies or investment vehicles.
For mixed-ownership businesses, the practical effect is straightforward under the policy language: if any ownership interest traces back to an LPR at any level, the business fails the eligibility test once the cutoff date applies. The notice also makes the disqualification about ownership itself, not about management control or voting power, because it bars LPRs from owning “any percentage interest.”
Programs affected and practical impacts
The policy change affects the SBA’s two flagship lending programs, the 7(a) and 504 programs. The SBA described 7(a) loans as general-purpose loans for working capital, equipment, and debt refinancing, while 504 loans are specialized loans for purchasing commercial real estate and heavy machinery.
For many borrowers, those programs cover the kinds of transactions that can anchor a business’s next step: a renovation, a new line of machinery, a warehouse purchase, or a debt restructuring to stabilize cash flow. If a business falls out of eligibility because of an owner’s immigration status, the SBA guarantee is no longer available, and borrowers may have to seek private financing or alter transaction terms.
The SBA framed the shift as a break from longstanding practice. The notice said that for over 25 years, businesses qualified for SBA loans if they were majority-owned, at least 51%, by U.S. citizens or Lawful Permanent Residents.
The new requirement, by contrast, demands 100% ownership by U.S. citizens or U.S. nationals and disqualifies any LPR ownership. That is an eligibility change for a federal loan program rather than a change to immigration status or the rights a green card provides under immigration law.
Rationale cited by the SBA
The SBA grounded its decision in a broader executive-policy context cited in the notice. It referenced Executive Order 14159, “Protecting the American People Against Invasion,” which directs federal agencies to stop providing “any public benefits” to non-citizens not specifically authorized by certain statutory provisions.
The notice also offered a rationale focused on the destination of government-backed credit. SBA spokesperson Maggie Clemmons said in earlier briefings that the restrictions are necessary to ensure “government-guaranteed capital” does not flow to “small businesses owned in any part by illegal aliens or noncitizens from adversarial nations.”
Market and operational effects
While the SBA’s rule applies mechanically through ownership checks, lenders said the change can carry an outsized effect even if the share of affected deals appears modest. Lenders reported that approximately 10% of current SBA-backed loans include at least some ownership by green card holders, a figure that becomes decisive when the eligibility bar turns on any ownership interest at all.
Lenders also pointed to recent market signals suggesting friction in the eligibility verification process. Data from late 2025 showed that related tightening of citizenship verification had already contributed to a 46% drop in SBA lending volume between June and August 2025.
That decline does not by itself identify how many applications were rejected versus delayed or withdrawn, but it signals that documentation and review steps can change borrower behavior and lender workflow. For applicants, added verification can translate into more requests for records, longer timelines, and late-stage restructuring demands when ownership facts surface.
In practical terms, the sharpest edge of the policy lands on entrepreneurs and teams with mixed immigration status among owners. The SBA rule treats fractional ownership as disqualifying, and the notice’s “any percentage interest” phrasing means a 1% stake triggers the same result as a larger stake.
Those scenarios are common in small business finance, including businesses with a minority co-founder, a spouse who holds equity, an early investor with a small stake, or an employee equity arrangement. Under the new standard, any such interest held by a Green card holder blocks eligibility for the entire Applicant/Borrower, and the notice extends that result to Operating Companies and Eligible Passive Companies involved in the structure.
The rule can also affect businesses that hold assets in one entity and operate in another. An EPC structure, for example, often separates real estate ownership from operations, but the notice’s language makes LPR ownership disqualifying in either entity, limiting the ability to isolate the issue by shifting where assets sit.
For lenders, the shift raises operational questions about when and how to screen for eligibility. Because the policy turns on ownership status across direct and indirect owners, lenders may need earlier, more detailed ownership mapping, including tracing through entity layers and documenting the citizenship or nationality of owners the SBA considers relevant.
That type of screening can reshape timelines. Deals that previously reached underwriting and appraisal steps before intensive ownership tracing may face earlier gating, particularly as lenders try to avoid expending resources on transactions that cannot obtain an SBA loan number under the new rules.
Industry and political reaction
Industry and political reaction has also surfaced. The National Association of Government Guaranteed Lenders and Democratic lawmakers expressed concern that the rule will stifle economic growth in immigrant-heavy sectors like manufacturing and technology.
The SBA policy also sets up a wave of ownership changes for businesses that still want SBA-backed financing. The notice’s ownership rule leaves few options for a company with an LPR owner other than altering the ownership itself, because eligibility depends on who owns the Applicant/Borrower, OC, and EPC, not on who manages the business.
Businesses sometimes consider buyouts, redemptions, transfers of interests, or changes to equity classes when a financing program imposes ownership restrictions. The policy change described here, however, creates time pressure around March 1, 2026, because transactions that do not receive an SBA loan number by then must comply with the 100% U.S. citizen or U.S. national ownership requirement.
Restructuring can also carry tradeoffs that sit outside the SBA program rules. Ownership changes can affect governance rights, control, investor agreements, and the economic split among founders, and they can also trigger tax and documentation consequences that vary by entity type and transaction design.
Relation to immigration status
The SBA rule is distinct from immigration planning, because it does not change a person’s green card status or work authorization. It changes whether a business that includes an LPR owner can access a federal loan guarantee, and it does so by redefining who counts as an eligible owner for the lending programs.
For readers trying to confirm what governs eligibility, the controlling documents for lenders are the SBA policy notice and the updated SOP 50 10 8. The policy notice identifier the SBA cited is SBA Policy Notice 5000-865754, and it sits alongside subsequent updates to the SOP referenced in the notice.
Policy Details and Governing SOP
This section introduces the formal policy materials and the updated operating procedure that lenders use to implement eligibility checks. The interactive tool will present the specific notice text excerpts, SOP update references, and procedural checklists lenders follow when tracing ownership and documenting citizenship or nationality.
Use the tool to explore the notice language, the SOP sections cited, and the transition-rule mechanics tied to the SBA loan number milestone. The tool provides searchable access to the controlling phrases and procedural pointers without relying on static tables in this article.
Official Sources and References
The notice cited Executive Order 14159, “Protecting the American People Against Invasion,” as part of its stated policy backdrop. It also referenced USCIS Policy Memorandum PM-602-0194 in related context on immigration benefit holds.
The SBA notice identifier the agency cited is SBA Policy Notice 5000-865754. The U.S. Senate Committee on Small Business and Entrepreneurship listed an inquiry dated Dec 19, 2025 that appeared in the broader materials the agency referenced.
The interactive reference tool linked to this section will surface the official notice text, SOP update citations, and related government documents for lenders and borrowers to review directly. It is intended to provide the precise sourcing and document identifiers lenders must consult when verifying eligibility.
Final practical note
For businesses weighing whether to proceed, restructure, or seek other financing, the practical dividing line remains the SBA loan number timing relative to March 1, 2026. For Green card holders who already own businesses or plan to buy into one, the SBA’s new rule makes ownership itself the deciding factor for access to SBA-backed small business loans after that date.
As the SBA stated in quoted remarks, the agency’s goal is to ensure “government-guaranteed capital” does not flow to “small businesses owned in any part by illegal aliens or noncitizens from adversarial nations,” a rationale that the notice and SOP updates reflect in the revised eligibility checks.
