SBA Loan Rule Changes Now in Effect: What Buyers Need to Know

Important Updates to SBA Financing Guidelines – Effective June 1, 2025

For many illi clients, SBA financing remains a strong option for owner-occupied properties or for those seeking to purchase a business that includes a real estate component. However, as of June 1, 2025, significant changes to the SBA loan program have taken effect, and it’s important to understand how these may impact eligibility.

Key Changes to SBA Loan Eligibility

1. Stricter Citizenship Requirements for Owners and Key Personnel
   The most notable update relates to citizenship status. SBA loans are now limited to small businesses where 100% of direct and indirect owners are U.S. citizens or legal residents. If any affiliated company is even partially owned by a foreign entity, the loan will be denied.

Furthermore, the guidelines now restrict loans if any top-level managers—defined as individuals with the authority to make policy or major business decisions—are non-U.S. citizens. A six-month lookback period also applies: if an ineligible individual was a partial owner or key employee during that time, the loan will be declined.

Additionally, if it is discovered that a business employs undocumented immigrants, the SBA will refuse to originate the loan. Previously, businesses could have up to 49% foreign ownership, including non-U.S. citizens, nationals, or lawful permanent residents (LPRs). This is no longer allowed.

2. Enhanced “Credit Elsewhere” Test
   The SBA has also tightened the “credit elsewhere” requirement. Borrowers must now provide specific, detailed reasons why they are unable to secure conventional financing. The burden is on the borrower to clearly demonstrate that SBA support is necessary.

If the SBA determines that the borrower has sufficient liquid assets to fund the project independently—without debt—the loan will be rejected.

3. Prohibited Business Activities
   Businesses involved in operations related to marijuana, hemp, or cannabidiol (CBD) are now ineligible for SBA loans, regardless of state law.
4. Delinquent Federal Debt
   Individuals with outstanding delinquencies or losses on federal debt will also be automatically disqualified from SBA financing.

What This Means for You

The June 1, 2025, SBA rule changes are both significant and impactful. Before relying on SBA funds for your next business acquisition or real estate investment, it is critical to speak with a capital markets expert or a loan officer at an institution experienced in SBA lending. These professionals can help assess your eligibility and explore financing options under the new guidelines.