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For years, the Small Business Administration’s (SBA) 7(a) loan program has been a vital funding source for entrepreneurs acquiring small and medium-sized businesses (SMBs). However, a new policy update has significantly changed the rules regarding business ownership, effectively barring foreign individuals from holding any equity in businesses that receive SBA financing.
A recently issued SBA Policy Notice 5000-865754 updates the agency’s Standard Operating Procedures (SOPs) to align with recent executive orders, introducing tighter restrictions on who can own a business that benefits from SBA-backed loans. While the SBA has always had some restrictions on foreign ownership, this new rule removes any remaining flexibility and adds stricter documentation requirements.
Under the updated SOP 50 10 7.1, businesses must now meet three key requirements:
| Policy Area | Before Policy Notice 5000-865754 | After Policy Notice 5000-865754 |
| Foreign Ownership | Allowed in minority stakes (less than 49%) if a U.S. citizen or LPR held majority control. | 100% of the business must be owned by U.S. citizens, U.S. nationals, or lawful permanent residents. No foreign ownership allowed. |
| Ownership Documentation | No strict documentation threshold for ownership disclosure. | At least 81% of Beneficial Owners must be documented in E-Tran. |
| Certification Requirements | Lenders responsible for basic verification of ownership structure. | Lenders and borrowers must formally certify compliance with ownership restrictions under penalty. |
These stricter ownership rules could significantly impact SMB acquisitions by restricting access to one of the few widely available debt financing options for business buyers. The SBA 7(a) loan program has long been a primary resource for business acquisitions, outside of specialized lenders and Small Business Investment Companies (SBICs). With these changes, investors who previously relied on SBA loans must now ensure their ownership structures comply or seek alternative financing.
With these new restrictions in place, business buyers, investors, and lenders must carefully evaluate how these changes impact their deals. Those who previously worked with foreign investors may need to restructure ownership stakes to qualify for SBA financing or explore alternative lending options.
If you are considering an SBA-backed loan for an acquisition, it’s critical to consult with:
The bottom line? The SBA is no longer an option for deals that involve any foreign ownership—so buyers must plan accordingly.
