Best Practices: SBA Policy Updates Regarding Citizenship Requirements for SBA Loans

On March 7, 2025, SBA issued Policy Notice 5000-865754 (the “Policy Notice”), Policy Updates to Comply with Executive Order 14159 Regarding Citizenship Requirements for Obtaining 7(a) and 504 Loans, effective as of the date it was issued.  The Policy Notice, which amends SOP 50 10 7.1, significantly changes eligibility requirements for businesses owned by non-U.S. citizens.  As of March 7, 2025, SBA loans can only be made to businesses with 100% Beneficial Ownership (which is ownership either directly or indirectly through another entity) by U.S. citizens, U.S. Nationals, or Lawful Permanent Residents (“LPRs”).  SBA loans may not be made to businesses owned in whole or in part by undocumented (illegal) aliens.

The Policy Notice states that its purpose is to comply with Executive Order 14159, Section 20 of 90 FR 8443, Protecting the American People Against Invasion, which is issued under the authority of the Immigration and Nationality Act (“INA”), and Section 301 of Title 3, United States Code.  This Executive Order directs SBA to prevent public benefits to any illegal alien not authorized to receive such benefits under the INA or other relevant statutes.

The Policy Notice clarifies that an applicant is ineligible for SBA financing if the applicant is owned by “ineligible persons” which include, but are not limited to, “foreign nationals, those granted asylum, refugees, visa holders, nonimmigrant aliens under 8 U.S.C. § 1101(a)(15), those under Deferred Action for Childhood Arrivals (DACA), and undocumented aliens who are in the U.S. illegally.” SBA lenders are required to certify in E-Tran that no Beneficial Owner is an ineligible person.  Further, Borrowers must provide the same certification on SBA application forms and must also include an LPR’s alien registration number on the form.  Alternatively, if an LPR does not have an alien registration number, he or she may provide an I-94 card which has a departure record number issued on it.  Until the SBA application forms are updated to include such certifications, Lenders are instructed to obtain a written certification from Borrower that no Beneficial Owner is an ineligible person and to collect applicable alien registration numbers.

The Policy Notice also states that in addition to Lenders being required to enter into E-Tran all Beneficial Owners of at least 20% of the loan applicant, Lenders now must enter into E-Tran at least 81% of the loan applicant’s Beneficial Owners.  The Policy Notice also reinstates the process of verification of alien status through the Sacramento Loan Processing Center using USCIS Form G-845, Document Verification Request, and supporting documentation.  Lenders are instructed to retain a copy of the alien’s USCIS documentation in the loan file.  Lenders must verify the status of an LPR if 6 months or more has passed since the prior verification.

Because the Policy Notice is already in effect and impacts eligibility determinations, it is important that Lenders update their policies and procedures for verifying the citizenship and alien status of all Beneficial Owners of an applicant, and implement those updated policies immediately on all current and future applications. For questions regarding SBA citizenship requirements or other eligibility determinations, contact the attorneys at Starfield & Smith at 215-542-7070 or email us at info@starfieldsmith.com.