Major Policy Shifts: New SBA Citizenship Requirements and Tariffs Impact Small Business Lending

Small business lending in the United States has recently undergone significant policy changes that are reshaping who can access capital and how businesses operate. Two major developments—new citizenship requirements for SBA loans and increased tariffs on imported goods—are creating both challenges and opportunities for entrepreneurs and lenders alike. This article examines these changes and their potential impact on the small business landscape.

SBA’s New Citizenship Requirements: A Sudden and Significant Change

On March 7, 2025, the Small Business Administration (SBA) implemented an immediate and unexpected policy change: entities receiving SBA loans must now be 100% owned by U.S. citizens or legal permanent residents (green card holders). This represents a dramatic shift from the previous requirement, which only mandated 51% ownership by U.S. citizens or permanent residents.

What Changed?

Prior to March 7, businesses could qualify for SBA financing if at least 51% of the ownership was held by U.S. citizens or green card holders. The remaining 49% could be owned by foreign nationals holding various visa types. This structure provided a pathway for many immigrants to establish businesses in the United States while working toward permanent residency or citizenship.

Under the new rules:

• Entities receiving SBA loans must be 100% owned by U.S. citizens or green card holders
• Foreign nationals on other visa types can no longer be part of the ownership structure for businesses seeking SBA financing
• The change was effective immediately with no grace period for deals in process

Industries Most Affected

This policy change is particularly disruptive to certain industries where foreign investment has been common:

1. Hospitality: The hotel industry has traditionally seen significant foreign investment and ownership structures incorporating non-permanent residents.
2. Franchise Operations: Many franchise systems have attracted foreign investors seeking to establish businesses in the United States.
3. Technology Startups: Foreign-born entrepreneurs on work visas often partnered with U.S. citizens to launch technology businesses.

Immediate Market Impact

The immediate effect has been substantial. Lenders report deals falling through overnight, with some experiencing losses of millions in their loan pipeline. Without warning or a transition period, loans that were nearly ready to close suddenly became ineligible for SBA financing.

In one example shared by industry professionals, a lender had a $4 million hotel acquisition that was considered a “slam dunk” deal before the rule change. After March 7, that deal could no longer proceed under SBA financing due to the ownership structure.

Broader Implications for Immigration and Investment

Beyond the direct impact on lending, this policy shift raises concerns about immigration pathways and foreign investment in American small businesses.

Pathway to Citizenship Concerns

For many immigrants, business ownership has represented an important path toward establishing permanent roots in the United States. The previous 51% structure allowed foreign nationals to:

• Build a business presence while working toward permanent residency
• Demonstrate economic contribution to the United States
• Create jobs for American workers
• Eventually qualify for citizenship through entrepreneurship programs

The new rules effectively eliminate this pathway for those who haven’t yet obtained permanent residency, potentially reducing immigration through entrepreneurship.

Investment Implications

The United States has long been considered a safe haven for global investment. Foreign investors often choose the U.S. for its:

• Political stability
• Strong legal protections
• Economic growth potential
• Relative safety compared to more volatile regions

Restricting SBA lending to businesses with 100% domestic ownership may redirect some foreign capital to other countries with more flexible investment structures, potentially reducing overall investment in U.S. small businesses.

Rising Tariffs: Another Layer of Complexity

Simultaneously, the U.S. is implementing significant new tariffs on imported goods from various countries. These tariffs, some reaching as high as 25-50% on certain materials like steel and aluminum, create another layer of complexity for small businesses.

Key Tariff Impacts

The new tariff policies affect businesses in several ways:

1. Increased Costs: Businesses that rely on imported goods will face higher costs, which may be difficult to immediately pass on to customers.
2. Supply Chain Disruption: Companies may need to quickly find alternative suppliers, potentially disrupting established business relationships and processes.
3. Cash Flow Pressure: The immediate price increases for imported materials can create cash flow challenges, particularly for businesses operating on thin margins.
4. Loan Performance Risk: Existing SBA borrowers who rely heavily on imported goods may face profitability challenges, potentially increasing default rates.

Differing Perspectives: Short-Term Pain vs. Long-Term Gain

Business development officers and lenders express varied perspectives on these changes, particularly regarding tariffs. Two contrasting viewpoints emerge:

The Optimistic View

Some see significant opportunity in these changes, particularly from tariffs. They argue that:

• Tariffs will encourage more domestic manufacturing and production
• New businesses will emerge to fill market gaps, creating SBA lending opportunities
• Job creation will increase as production returns to the United States
• Entrepreneurs will adapt and find new opportunities in a changing market

From this perspective, while there may be short-term disruption, the long-term effect could be positive for domestic small business growth and SBA lending volume.

The Cautious View

Others express concern about the immediate disruption and potential risks:

• Existing loan portfolios could see performance issues as businesses struggle with higher costs
• The sudden implementation creates uncertainty that may make banks more conservative in lending
• Some businesses cannot easily pivot their supply chains or business models in response
• The unpredictability of future policy changes makes long-term planning difficult

This perspective emphasizes that while adaptation is possible, the transition period creates real challenges for both lenders and businesses.

Potential Responses and Adaptations

How might businesses and lenders respond to these significant policy shifts?

For Businesses Affected by Citizenship Requirements

Businesses with foreign national ownership seeking SBA financing may consider:

1. Restructuring Ownership: Some may reorganize their ownership structure to meet the new requirements, though lenders will likely scrutinize such changes for potential “backdoor” arrangements.
2. Alternative Financing: Exploring conventional financing options that don’t carry the same citizenship requirements, though these typically require larger down payments.
3. Finding U.S. Partners: Identifying U.S. citizen partners who can take ownership positions while the foreign national works toward permanent residency.

For Businesses Affected by Tariffs

Companies impacted by increasing tariffs might:

1. Diversify Supply Chains: Seeking domestic alternatives to previously imported materials.
2. Adjust Pricing Models: Strategically increasing prices to maintain margins while remaining competitive.
3. Explore New Business Opportunities: Considering how domestic production capabilities could create new business lines.
4. Seek Financial Relief: If cash flow becomes problematic, working with lenders on potential modifications or relief options.

For Lenders

SBA lenders navigating these changes should consider:

1. Portfolio Review: Identifying existing borrowers who might be vulnerable to tariff impacts.
2. Proactive Communication: Reaching out to potentially affected borrowers to discuss contingency plans before problems arise.
3. Advocacy: Working through industry associations to provide feedback to the SBA on the impact of these changes.
4. Specialized Industry Knowledge: Developing deeper understanding of how specific industries are adapting to properly evaluate risk in new loans.

Will Relief Programs Be Needed?

Some industry professionals suggest that if tariffs create significant hardship for certain industries, the SBA might need to consider relief programs similar to those implemented during other economic disruptions.

Potential approaches could include:

• Industry-specific relief based on NAICS codes most impacted by tariffs
• Temporary payment deferment options for affected borrowers
• Expanded working capital programs to help businesses manage transition costs

However, unlike clearly defined events like natural disasters or the COVID-19 pandemic, the impact of tariffs varies greatly by industry and business model, making targeted relief more challenging to implement.

Looking Forward: Uncertainty and Adaptation

These policy changes represent significant shifts in the small business lending landscape. While their long-term impact remains uncertain, what’s clear is that both businesses and lenders must be increasingly adaptable.

For entrepreneurs, especially those from immigrant communities, the path to business ownership through SBA lending has become more challenging. Yet the entrepreneurial spirit thrives on finding solutions to obstacles, and new pathways will likely emerge.

For lenders, these changes highlight the importance of staying informed about policy developments and maintaining close relationships with borrowers to navigate challenges together.

The small business ecosystem has always been dynamic, but today’s environment requires even greater flexibility and resilience. Those who can successfully adapt to these policy shifts—finding opportunity amid disruption—will be positioned for success in this new landscape.

This article is based on industry perspectives from experienced small business lenders and reflects the state of SBA lending policies as of April 2025. Businesses should consult with qualified financial and legal advisors regarding their specific situations.