On December 19, 2025, the SBA announced important revisions to the citizenship and residency requirements set forth in Standard Operating Procedure (SOP) 50 10 8. These changes will apply to all SBA loan applications approved on or after January 1, 2026, and will impact how ownership and eligibility are evaluated for 7(a) and 504 loans. While SBA Form 1919 and SBA Form 1244 are not yet updated to reflect the new requirements, Lenders must revise and supplement their current certifications to be signed by their applicants for any loan approved on or after January 1, 2026, to incorporate the new requirements.  See SBA Procedural Notice 5000-872050.

Under the revised SOP, SBA is allowing a limited exception to the citizenship and residency rules. Going forward, an Applicant may have up to 5% aggregate ownership held by certain individuals who do not meet the SBA citizenship and residency standard. This includes foreign nationals who live outside the United States and are otherwise eligible, U.S. Citizens, U.S. Nationals, or Lawful Permanent Residents whose principal residence is outside the United States, and individuals with Conditional Lawful Permanent Resident status. Starfield & Smith conducts thorough SBA regulatory compliance audits, helping lenders identify gaps, reduce risk, and maintain full adherence to SBA requirements.

Notwithstanding the limited exception, the core eligibility requirement remains largely unchanged. At least 95% of a small business concern must still be owned, directly or indirectly, by U.S. Citizens, U.S. Nationals, or Lawful Permanent Residents whose principal residence is in the United States, its territories, or possessions. In addition, all SBA-required guarantors must meet these same citizenship and residency requirements. Any entity that owns part of the Applicant, whether directly or indirectly, must continue to be formed or incorporated in the United States, its territories, or possessions.

The revisions also updated the definition of an “Ineligible Person.” Under the expanded definition, loans are not eligible for SBA financing if any direct or indirect owner is an undocumented individual, an asylum recipient, refugee, visa holder, nonimmigrant alien, or a person covered by Deferred Action for Childhood Arrivals, subject to a limited exception for certain Conditional LPRs within the 5% ownership allowance. The definition also excludes entities formed outside the United States, individuals who are citizens of or primarily reside in the People’s Republic of China or Hong Kong, and any individual or entity listed on the Office of Foreign Assets Control sanctions list.

Lenders will be required to certify in E-Tran that, to the best of their knowledge, no direct or indirect owner or guarantor is an Ineligible Person. No loan may be approved if this certification cannot be made. Lenders may accept the Applicant’s certifications on SBA Forms 1919 or 1244 that no more than 5% in the aggregate of the direct and indirect owners of the Applicant, OC, and EPC, and all SBA-required guarantors, including entities, have a Principal Residence (as defined by IRS publication 523) in the United States, its territories, or possessions.  However, until SBA Forms 1919 and 1244 are updated and released, lenders must collect all newly required information and certifications as set forth in the Procedural Notice and retain them in their loan file.

Lenders must continue to review ownership structures carefully, especially where foreign ownership or non-resident individuals are involved, and document their files accordingly to ensure compliance with the latest guidance. Starfield & Smith delivers SBA training, equipping lenders and other clients with the knowledge and tools needed to stay compliant with SBA regulations and best practices.

For more information regarding citizenship and residency requirements, or SBA guaranteed lending in general, contact the attorneys at Starfield & Smith at info@starfieldsmith.com or 215.542.7070.