The U.S. Small Business Administration (SBA) has long been a key source of funding for entrepreneurs, whether they are looking to launch an enterprise, expand, or navigate economic difficulties. It has also been a vital resource for homeowners rebuilding after various natural disasters.
For businesses, SBA loans — primarily made through the “7a” and “504” programs — are obtained through financial institutions, not directly from the agency itself. The loans are made and managed by local banks, backed by a guarantee from the SBA.
Recent changes have significantly altered the SBA’s approach to lending to businesses, including new restrictions and narrower eligibility requirements.
According to Nimi Natan, president and CEO of Gulf Coast Small Business Lending, a division of Gulf Coast Bank & Trust, one driver of this change was a surge of bad loans in 2023, 2024 and early 2025, when banks were encouraged by the SBA to make smaller/riskier loans in the name of “capital access.”
The most impactful changes can be found in new SBA regulations imposed last year. As explained on the U.S. Congress website, “SBA loans will be restricted to small businesses with 100% of direct and indirect owners, loan guarantors, and key employees (such as top-level managers) who are U.S. citizens, U.S. nationals, or lawful permanent residents (LPRs).”
This rule then was dialed back somewhat, allowing up to 5% of investors and/or key employees to be foreign nationals. Then, just recently, part of that change pertaining to ownership was rescinded. The new guidance is that “all direct and/or indirect owners of a small business applicant must be U.S. citizens or U.S. nationals who have their principal residence in the United States, its territories, or possessions.”
It is important for entrepreneurs considering seeking SBA-backed funds to be aware of this rule and to be sure that they are not in violation of it. The requirement is retroactive for six months, meaning that even if a business makes changes to come into compliance, there will be a half-year waiting period before a loan can be obtained.
Another key change relates to the personal assets of the individual(s) applying for SBA funding. While there has long been a restriction on lending to those who could likely find funding elsewhere, the personal resources of applicants were not factored into the process. The new rules require a certain amount of means-testing during the application process, while continuing the mandate to supply documentation to support a claim of not being able to find other funding sources.
Additional new restrictions limit both the type of businesses that may seek SBA loans, and the eligibility of specific individuals to receive them. The threshold at which a borrower must provide loan collateral was vastly reduced, from $500,00 to $50,000, which may be challenging for some applicants.
Insurance requirements increased in the new rules, including increases in hazard and flood insurance. Minimum credit score standards also went up.
Another change is that local financial institutions that process most applications for the SBA must now undertake a considerably larger percentage of the verification and documentation necessary to move the loan process forward. Applicants themselves will be required to provide more information than was needed previously.
Natan sees these as changes as being for the better.
“The added requirements for both lenders and borrowers are improving the soundness of the program and saving many borrowers from taking on too much debt,” he said.
One small but important change with potential benefit to a certain subset of entrepreneurs is that applications from military veterans will be given a higher priority.
With most of the SBA rule changes in place for a year or less, the impacts cannot yet be truly assessed. In the meantime, entrepreneurs looking into SBA funding should be aware of the current changes, keep abreast of any future changes and consult at the beginning of the process with their financial institution.
Keith Twitchell spent 16 years running his own business before serving as president of the Committee for a Better New Orleans from 2004 through 2020. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.
