New rules restricting access to Modest Business Administration (SBA) loans to U.S. Citizens and nationals took effect Sunday, prompting concerns that entrepreneurs will increasingly turn to alternative lenders for capital. The revised eligibility criteria exclude lawful permanent residents – Green Card holders – from the SBA’s 7(a) and 504 loan programs.
The shift in policy comes after initial changes last year that curbed access for businesses with foreign ownership, but still permitted participation by lawful permanent residents. The latest revision, unveiled last month, broadened the restrictions.
Data indicates the policy changes are already impacting lending activity. The SBA’s 7(a) program, its flagship loan guarantee program, reported $11.78 billion in loan volume for the first five months of the 2026 fiscal year, beginning October 1, 2025 – an 18% decrease compared to the same period in the previous fiscal year, according to agency figures.
Adam Benowitz, CEO of VOX Funding, a New York-based alternative financing company, predicted the changes would drive more borrowers to nonbank lenders. “What I believe it could do is add more volume for alternative small-business lenders,” Benowitz told American Banker. “When entrepreneurs need capital, they need capital. You need to be there to solve it for them.” VOX Funding has secured a $150 million credit facility from Raven Capital to expand its financing options for U.S. Businesses, having already funded over $750 million through its platform since its founding in 2018.
The SBA’s programs are attractive to entrepreneurs due to their lower interest rates and longer repayment terms compared to many conventional loans. Ben Johnston, chief operating officer of Kapitus, another New York-based small-business lender, said his company’s non-SBA loan options are likely to spot increased demand. “It’s very hard to replicate that financing through other products,” he told American Banker.
In fiscal year 2025, the SBA’s 7(a) and 504 programs provided more than $45 billion in capital to eligible small businesses.
The Trump administration defended the new rules, stating its commitment to supporting American job creators. “Across every program, the SBA is ensuring that every taxpayer dollar entrusted to this agency goes to support U.S. Job creators and innovators,” said SBA spokesperson Maggie Clemmons in a statement.
However, Democratic lawmakers have criticized the restrictions. Rep. Nydia Velazquez of New York, the ranking minority member on the House Small Business Committee, and Sen. Edward Markey of Massachusetts, ranking member on the Senate Small Business and Entrepreneurship Committee, argued the rules would increase compliance burdens for lenders and hinder job creation. In a letter to SBA Administrator Kelly Loeffler last week, the lawmakers called for strengthening SBA capital access programs and increasing financing opportunities for small businesses.
Nimi Natan, president and CEO of the SBA lending subsidiary of Gulf Coast Bank and Trust Co. In New Orleans, said his team has already been forced to decline some loan applications due to the new eligibility requirements. He noted that SBA lenders often focus on larger, more established businesses where foreign-born owners have typically resolved their citizenship status, while lending to early-stage entrepreneurs, including lawful permanent residents, carries greater risk.
According to Adam Benowitz, immigrants represent an estimated 5%-15% of the SBA’s lending volume historically, and are “natural entrepreneurs.” He added, “It’s hard to tell what the effect [of the new rules] will be since they went into effect yesterday, but it’s certainly going to be profound.”