Earlier this month, the U.S. Small Business Administration (SBA) banned foreign nationals, non‑citizens, and lawful permanent residents whose principal residence was outside of the U.S. from owning any interest in a small business applicant of a SBA‑guaranteed small business loan under the 7(a) and 504 programs. Effective April 1, 2026, that ban will expand to the Surety Bond (Procedural Notice 5000-877134) and Microloan (Procedural Notice 5000-877232) programs. Below, PilieroMazza highlights what this means for businesses that regularly apply for SBA-backed loans as well as those that don’t.
Overview of the New Policy and Key Provisions
Previously, limited exceptions permitted the SBA to approve SBA-guaranteed loans to companies with foreign ownership. Now, when applying for the 7(a), 504, Surety Bond, or Microloan programs (collectively, the Loan Programs), 100% of a small business’s ownership must consist of U.S. citizens or U.S. nationals with their principal residence in the United States. Significantly, this change requires all direct and indirect owners of an applicant be U.S. citizens or U.S. nationals, precluding an applicant from having higher-tier foreign ownership. While these changes are being issued via procedural notices, the SBA has not provided conformed, updated copies of its standard operating procedures (SOPs). And according to the notices, these policy changes are consistent with President Trump’s Executive Order 14159 “Protecting the American People Against Invasion.”
Legal Implications for Businesses
These policy changes could render current and future applicants for the Loan Programs ineligible. While the new ownership policy does not retroactively redefine eligibility for loan applications that have already closed, borrowers with covenants that are triggered by change‑of‑ownership events should evaluate ongoing compliance against these updated policies. In addition, current borrowers should be weary and carefully review any potential modifications to their loan terms that may relate.
But not just borrowers (or potential borrowers) must be tracking these issues. These changes will also impact the Mergers and Acquisitions (M&A) space as well. Transactions should not be closed without a close review of any current or pending SBA-backed loans. In our experience, the loan documents almost always contain covenants restricting ownership changes without the SBA’s prior written consent. Failure to obtain this consent generally leads to automatic default and acceleration of the full loan amount.
Buyers and sellers should be cautious when a deal involves an SBA loan and any form of foreign ownership. While the notices make applicants ineligible, the SBA could use similar reasoning to not provide prior written consent for an ownership change or change-of-control, stifling the deal at the 11th hour.
Next Steps
- Assessing Current and Future Compliance. For companies planning to apply for financial assistance in the Loan Programs, it would be prudent to map direct and indirect ownership before submitting the application to confirm you comply with these new policy changes and avoid an application being denied. During this process, it may be worth analyzing whether you also comply with other ownership requirements under the SBA’s affiliation rules, an often misunderstood concept.
- Engage Counsel during Transaction Structuring. It is imperative to pay careful attention to these new ownership requirements. While M&A of government contractors is already an intensive process, understanding the SBA’s Loan Programs and associated rules—which are different than those governing federal procurement—may be necessary to avoid potential headaches as closing approaches.
- Understanding Potential Risks of Non-Compliance. Other than having your application declined, there could be other implications for making false certifications in your application when you knew or reasonably should have known you were ineligible based on foreign ownership. Given SBA’s recent history of intensified post‑payment reviews of loans under the Paycheck Protection Program (PPP) and False Claims Act, engaging counsel promptly upon receiving subpoenas or civil investigative demands is critical.
If you have any questions regarding foreign ownership of SBA loans or any particular concerns regarding your individual loan, please contact Cy Alba, Daniel Figuenick, or another member of PilieroMazza’s Mergers & Acquisitions or Government Contracts practice groups.
