Best Practices: Further Clarification on Citizenship Requirements for SBA Loans

In SOP 50 10 8, the SBA has updated its guidance on citizenship requirements for SBA loan eligibility, providing additional clarity for lenders navigating ownership and guarantor eligibility. These changes are critical for compliance, particularly when working with businesses that include non-citizen stakeholders.

Six-Month Lookback for Ownership
The SBA has clarified that an applicant is ineligible if any Associate is an Ineligible Person, and a six-month lookback period will apply when evaluating whether a person is an Associate of the business. As a reminder, an Associate is “An officer, director, owner of more than 20 percent of the equity, or Key Employee of the small business…and any individual…in control of…the small business.” A Key Employee is “Any person hired by the business to manage day-to-day operations.” If an Ineligible Person was an Associate within six months prior to loan number issuance, the business is ineligible—unless that individual fully divests their ownership and ceases all involvement (including unpaid roles). If relying on full divestiture, lenders should be sure to document their files in a way to support such divestiture.

Guaranty Rules for Ineligible Persons
Ineligible Persons (other than undocumented individuals) may now provide limited guaranties only in connection with jointly owned collateral. However, undocumented individuals cannot serve as guarantors under any circumstances and must divest their interest in pledged collateral entirely for the loan to move forward.

Employment Requirements
Undocumented individuals are prohibited from being employees of the borrower.

Verification Requirements

For lawful permanent residents (LPRs), lenders must submit USCIS Form G-845, along with appropriate documentation, to the Sacramento Loan Processing Center (SLPC) for immigration status verification. Acceptable forms include a green card, temporary I-551 stamps, and certain USCIS notices.

Best Practices for Lenders
Lenders must continue to input at least 81% of total ownership into E-Tran and ensure that spousal and minor child interests are aggregated. Delegated lenders must verify immigration status and obtain borrower authorization before requesting a loan number. Individuals from American Samoa or Swains Island (U.S. Nationals) must provide acceptable documentation to demonstrate eligibility.

The updated guidance provides much-needed clarity on a topic that has generated significant compliance questions. Lenders are encouraged to closely review these changes and ensure that internal procedures align with the SBA’s expectations. For more information or assistance navigating these updates, please contact us at Starfield & Smith.