SBA Shuts Out Non-Citizen Lending: 100% U.S. Citizen Ownership Now Required
SBA Shuts Out Non-Citizen Lending: 100% U.S. Citizen Ownership Now Required
February 4, 2026 Written By Darin Manis
Building on the 2025 changes that limited non-U.S. citizen involvement, a new SBA Policy Notice effective March 1, 2026, ramps up the requirements. Now, 100% of all direct and indirect owners must be U.S. Citizens or U.S. Nationals with their principal residence in the United States, its territories, or possessions. This eliminates any foreign ownership—even minimal stakes—and excludes Legal Permanent Residents (LPRs, or green card holders) entirely.
What to Know
The updated SOP 50 10 8, as outlined in SBA Policy Notice 5000-876441, overhauls citizenship and residency rules for 7(a) and 504 loans. This notice rescinds the previous rules which had allowed a narrow 5% exception for foreign nationals or non-resident U.S. citizens/LPRs. Here's the key breakdown of the new 100% U.S. Citizenship Rule:
Full Ownership Requirement: Every owner—direct or indirect—must be a U.S. Citizen or U.S. National residing principally in the U.S., its territories, or possessions. No exceptions for partial foreign ownership.
Exclusion of LPRs: Legal Permanent Residents are no longer eligible to hold any percentage of ownership in the applicant business, Operating Company (OC), or Eligible Passive Company (EPC). This is a major departure from prior rules, where LPRs could participate as majority owners.
No More 5% Exception: The previous allowance for up to 5% ownership by foreign nationals or non-resident U.S. citizens/LPRs is gone. This applies to all SBA loan applications starting March 1, 2026.
Verification Process: Lenders will scrutinize ownership documents, such as operating agreements, stock certificates, and residency proofs, to ensure full compliance.
This policy aligns with 13 C.F.R. 120.100 and Executive Order 14159, emphasizing protection against foreign influence in U.S. small business funding.
Why the Change?
It seems the primary reasons for the change amount to:
National Security and Integrity: By mandating 100% U.S. Citizen/National ownership with domestic residency, the SBA aims to prevent foreign entities from accessing taxpayer-backed loans, reducing risks of external control or capital flight.
Policy Evolution: This builds on the 2025 SOP update, which required at least 51% ownership by U.S. citizens or LPRs. The new rule closes loopholes, reflecting heightened federal priorities on domestic economic stability amid global uncertainties.
Executive Directive: Executive Order 14159, "Protecting the American People Against Invasion," underscores the need to prioritize U.S. residents in federal programs, ensuring loans bolster local communities.
U.S. Born and Naturalized Citizens Only
Franchisees and independent business owners face amplified challenges under this rule. The 100% U.S. Citizen/National ownership mandate applies universally—no wiggle room for LPRs or foreign investors. A business with 99% U.S. Citizen ownership and 1% held by an LPR or foreign national is now ineligible. Previously, under the 2025 rules, majority LPR ownership was possible; now, it's zero tolerance. These measures ensure SBA funds stay within the U.S. economy, but they also create barriers for immigrants and international partnerships. If SBA loans are off the table, exploring non-SBA options like conventional loans, lines of credit, or investor partnerships becomes essential.
Think Inside the LoanBox
Navigating these stricter rules? LoanBox has you covered with smart, tailored alternatives. Just log in, complete our quick questionnaires, and build your loan package. Our platform matches you to lenders based on 100% alignment with dozens of criteria—no guesswork. Choose who accesses your package, review proposals, and pick the best fit. Track every step from application to funding, or let a LoanBox Advisor handle it all. Whether you're a franchisee or independent owner, we're your go-to for seamless financing solutions.