Effective March 1, 2026 | SBA 504 and 7(a) Loan Programs
A significant policy change is coming to the Small Business Administration's loan programs. Effective March 1, 2026, the SBA requires that 100% of all direct and indirect owners of a small business applicant be U.S. citizens or U.S. nationals residing in the United States or its territories. This rule affects both the SBA 7(a) and SBA 504 loan programs and represents a major departure from prior eligibility standards.
Whether you are a banker evaluating loan applications or a business owner exploring SBA financing options, understanding this change is critical before the deadline arrives.
What Changed and Why It Matters
Under the previous policy, lawful permanent residents (green card holders) and certain foreign nationals were eligible to participate in SBA loan programs, provided their ownership stake did not exceed 5%. That flexibility is now gone.
Beginning March 1, 2026, every owner of the borrowing business, regardless of ownership percentage, must be a U.S. citizen or U.S. national. There are no exceptions for small ownership stakes, partial ownership, or indirect ownership through holding companies or other entities.
Key Changes at a Glance
Effective Date: March 1, 2026
- Ownership Rule: 100% of all direct and indirect owners must be U.S. citizens or U.S. nationals
- Green Card Holders: No longer eligible, even with a valid lawful permanent resident status
- Residency Requirement: Owners must have their principal residence in the U.S., its territories, or possessions
- Applicable Programs: SBA 7(a) and SBA 504 loan programs
- Cut-off Date: Any business with non-citizen ownership that has not received an SBA loan number prior to March 1, 2026, will be ineligible
Who Is Affected
This policy change has broad implications for businesses across all industries and ownership structures. The following groups should pay close attention:
Business owners who are lawful permanent residents: Green card holders who previously qualified under the 5% rule are no longer eligible to be part of any SBA loan transaction, regardless of their ownership percentage.
Businesses with foreign national investors: Any ownership stake held by a non-U.S. citizen or non-U.S. national, no matter how small, will disqualify the business from SBA financing.
Businesses with indirect ownership structures: If a holding company, partnership, trust, or other entity has an ownership interest in the borrowing business, every individual behind that entity must also meet the citizenship requirement.
Bankers and lenders: Loan officers and SBA lenders must re-evaluate their pipelines and conduct thorough citizenship screening during underwriting to ensure compliance before the March 1, 2026, deadline.
How This Affects SBA 504 Loans and Commercial Real Estate Financing
The SBA 504 loan program is one of the most powerful tools available for small business commercial real estate purchases and major equipment financing. It allows eligible businesses to finance owner-occupied commercial real estate with as little as 10% down, making 90% financing a reality for qualified borrowers. In some cases, startup businesses or special-use properties may require a slightly higher down payment, but the program remains one of the most accessible paths to property ownership for small businesses.
With the new citizenship requirements in place, businesses that previously relied on the flexibility of the prior policy must ensure full ownership compliance before applying. For commercial real estate transactions already in the pipeline, time is critical. Any deal involving a business with non-citizen ownership that has not received an SBA loan number before March 1, 2026, will not be eligible for SBA 504 financing.
This makes early preparation and proactive communication between lenders, Certified Development Companies (CDCs), and borrowers more important than ever.
How This Affects SBA 7(a) Loans
The SBA 7(a) program is the SBA's primary lending tool, offering flexible financing for a wide range of business purposes including working capital, equipment, and real estate. Like the 504 program, 7(a) loans are now subject to the same 100% citizenship ownership requirement effective March 1, 2026.
Bankers who offer SBA 7(a) products must update their eligibility checklists and screening processes to reflect this new standard. Any application that does not meet the citizenship requirement will be ineligible, and lenders who approve non-compliant loans risk SBA guarantee enforcement issues.
What Bankers Should Do Before March 1, 2026
Lenders and loan officers should take immediate steps to address this policy change:
- Review all active SBA pipelines to identify any applications with non-U.S. citizen or non-U.S. national ownership.
- Update eligibility screening checklists to require citizenship verification for every direct and indirect owner.
- Communicate proactively with borrowers who may be affected, giving them time to restructure ownership if possible or explore alternative financing options.
- Work with your CDC partner to accelerate applications that are at risk of missing the March 1, 2026, cut-off date.
- Consult SBA procedural guidance and your SBA district office for the most current implementation details.
What Business Owners Should Do Before March 1, 2026
If you are a business owner exploring SBA financing, here is what you need to do:
- Confirm that all owners, including indirect ownership stakeholders, are U.S. citizens or U.S. nationals with a principal residence in the United States or its territories.
- If your business has any non-citizen ownership, consult with a legal or financial advisor about whether an ownership restructure is possible and appropriate.
- Move quickly if you are mid-process on an SBA loan. The cut-off is based on when the SBA loan number is issued, not when the application is submitted.
- Contact your lender or CDC as soon as possible to understand where your application stands relative to the deadline.
Frequently Asked Questions
Does this rule apply to businesses where a green card holder owns less than 5%?
Yes. The new rule eliminates the prior 5% threshold entirely. Any ownership by a lawful permanent resident or foreign national, regardless of percentage, will make the business ineligible for SBA financing effective March 1, 2026.
What counts as indirect ownership?
Indirect ownership includes ownership held through other business entities such as holding companies, partnerships, limited liability companies, trusts, or any other structure where an individual has a financial interest in the borrowing business without directly owning shares in it. All individuals with indirect ownership must also meet the citizenship requirement.
What if my SBA loan application was submitted before March 1, 2026?
The determining factor is whether the business received an SBA loan number before March 1, 2026. Simply submitting an application does not guarantee eligibility. Work with your lender or CDC to ensure the loan number is obtained before the deadline if your ownership includes any non-citizens.
Are there other SBA loan programs not affected by this rule?
The SBA 7(a) and SBA 504 loan programs are the two primary programs explicitly covered by this policy change. Contact your SBA district office or legal advisor for guidance on any other SBA programs you may be considering.
About CDC New England
CDC New England is a Certified Development Company (CDC) providing SBA 504 financing to small businesses throughout Connecticut, Massachusetts, New Hampshire, Rhode Island, and Vermont. We partner with banks and lenders to help small businesses access commercial real estate and equipment financing with reduced down payment requirements.
If you have questions about SBA 504 eligibility or need help navigating the new citizenship requirements, contact our team at cdcnewengland.com or call us to speak with an SBA 504 specialist.
