The SBA has made sweeping changes to its lending programs over the past year. Some of these changes open doors for certain borrowers. Others shut them entirely. If you are considering an SBA loan in 2026, you need to understand the new landscape before you apply.
This article covers the most significant policy changes affecting SBA 7(a) and 504 loans, what they mean in practice, and how to navigate them.
100% U.S. Citizenship Requirement (Effective March 1, 2026)
This is the single biggest policy shift in recent SBA history. As of March 1, 2026, 100% of all direct and indirect owners of an SBA borrower must be U.S. citizens or U.S. nationals with principal residence in the United States, its territories, or possessions.
What Changed
| Policy | Old Rule (Pre-2025) | Current Rule (March 2026) |
|---|---|---|
| Ownership threshold | 51% U.S. citizen/national/LPR | 100% U.S. citizen/national only |
| Green card holders | Eligible as owners | Completely barred from any ownership |
| Foreign nationals | Could hold up to 49% | No ownership permitted at any level |
The transition happened in stages. In June 2025, the SBA raised the threshold from 51% to 100%. In January 2026, they briefly allowed a 5% exception for foreign investment. As of March 1, 2026, that exception was eliminated entirely.
Impact on Green Card Holders
This is where the change hits hardest. Lawful permanent residents (green card holders) were previously treated identically to U.S. citizens for SBA eligibility purposes. Under the new rule, even a 1% ownership stake held by a green card holder disqualifies the entire business from SBA lending.
This applies to the applicant business, any operating companies, and any eligible passive companies in the ownership structure. The rule covers both 7(a) and 504 programs.
What About Existing Loans?
Loans approved before March 1, 2026 remain unaffected. However, if a business with an existing SBA loan undergoes an ownership change after that date, the new ownership structure must comply with the current rule.
If this affects you: Businesses with green card holders or foreign nationals in the ownership structure still have financing options outside of SBA programs. Conventional bank loans, lines of credit, and revenue-based financing do not have SBA citizenship requirements. Apply through Halford Capital and we will match you to non-SBA lenders that fit your profile.
FY2026 Fee Waivers for Manufacturers
For fiscal year 2026 (October 1, 2025 through September 30, 2026), the SBA has waived fees on loans to small manufacturers. This is a significant cost savings.
What Is Waived
| Program | Fee Waived | Conditions |
|---|---|---|
| SBA 7(a) | Upfront guaranty fee (0%) | Manufacturing loans up to $950,000 |
| SBA 504 | Upfront fee AND annual service fee (both 0%) | All 504 manufacturing loans, no cap |
Who Qualifies
Businesses classified under NAICS Sectors 31-33 (manufacturing). This covers everything from food and beverage production to metal fabrication, plastics, electronics, and machinery.
How Much This Saves
On a typical $500,000 SBA 7(a) loan, the upfront guaranty fee would normally be $13,125 to $17,500 (2.625% to 3.5% of the guaranteed portion). That fee is now zero for qualifying manufacturers. On a 504 loan, both the upfront CDC fee (typically 1.7%) and the ongoing annual service fee are eliminated.
MARC Loan Program
The SBA also launched its first-ever loan program dedicated exclusively to manufacturers: the Manufacturers' Access to Revolving Credit (MARC) Loan Program. MARC loans can be structured as revolving lines of credit (up to 20-year maturity) or term loans (up to 10-year maturity) for working capital needs like inventory, projects, and scaling. The first MARC loans were delivered in December 2025.
Collateral Requirements Tightened
Despite early expectations that collateral rules would be relaxed, the SBA actually tightened collateral requirements under the updated Standard Operating Procedure (SOP 50 10 8), effective June 1, 2025.
What Changed
- Old rule: Loans under $500,000 could be approved based on cash flow alone, with minimal collateral documentation.
- New rule: The threshold dropped to $50,000. Virtually all loans above $50,000 now require formal collateral documentation.
- Lenders must formally document and justify any collateral shortfall.
This hits service-based businesses hardest. A consulting firm, marketing agency, or IT services company may have strong cash flow but limited hard assets. Under the old rules, those businesses could get SBA loans up to $500K without pledging collateral. Now they face additional scrutiny and documentation requirements.
Partial Ownership Buyout Changes
The SBA updated its rules around using SBA loans to buy out partial ownership stakes, which is common in partnership transitions and succession planning.
Key Changes
- Seller may stay involved: In partial buyouts, the selling partner can continue in the business as an owner, officer, director, or employee post-sale.
- Seller note limits: Seller notes on full standby can now account for a maximum of 50% of the equity injection requirement. The note must be on full standby (no payments of principal or interest) for the entire life of the SBA loan.
- Multi-step transactions prohibited: Existing and new owners cannot form a new entity to acquire 100% of the operating company. This closes a structuring workaround that some borrowers used.
- Complete partner buyouts (90%+ of purchase price financed): Remaining owners must have been actively participating with the same or increasing ownership for at least 24 months, and the debt-to-worth ratio must be no greater than 9:1.
Other Notable Changes
Small 7(a) Loan Threshold Reduced
The "small loan" classification threshold was reduced from $500,000 to $350,000 (effective April 21, 2025). This affects processing requirements and oversight levels.
Credit Score Minimum Raised
The minimum SBSS (Small Business Scoring Service) credit score was raised from 155 to 165 (effective April 21, 2025). This is the automated scoring model that SBA-preferred lenders use for initial screening. A higher minimum means some borrowers who previously passed the initial screen will now be flagged for additional review.
MCA Refinancing Prohibited
As of April 21, 2025, SBA loan proceeds cannot be used to pay off merchant cash advance (MCA) debt. MCA obligations still count against your debt-to-income calculations, which means having an outstanding MCA can reduce the SBA loan amount you qualify for or disqualify you entirely.
Important: If you currently have an MCA and are planning to apply for an SBA loan, you need to factor the MCA repayment into your cash flow projections. The MCA cannot be refinanced with SBA proceeds, so it must be serviced alongside your SBA payments.
Guaranty Fees Reinstated
Upfront guaranty fees and lender service fees, which were waived during the pandemic era, have been fully restored (effective March 27, 2025). Typical upfront fees range from 2% to 3.5% of the guaranteed portion, depending on loan size and maturity. The exception is manufacturing loans, which are waived through FY2026 as noted above.
Federal Debt Checks Required
All SBA applications now require a CAIVRS (Credit Alert Verification Reporting System) check. Unresolved federal obligations, including student loan defaults, FHA foreclosures, and prior SBA defaults, are automatic disqualifiers. If you have any outstanding federal debt, resolve it or establish a payment plan before applying.
Record SBA Lending Despite the Changes
Despite the policy tightening, SBA lending hit record levels in FY2025: 84,400 loans guaranteed for $44.8 billion in total capital. The 7(a) program alone delivered 77,600 loans worth $37 billion. More than half of all 7(a) loans were under $150,000, and more than 80% were under $500,000.
The demand for SBA financing remains strong. The key is understanding how the new rules affect your specific situation and positioning your application accordingly.
What This Means for Borrowers
- If you are a U.S. citizen with no foreign ownership in your business, the citizenship changes do not affect you. Focus on the collateral and documentation requirements.
- If you have green card holders or foreign nationals in your ownership structure, SBA loans are no longer an option. Explore conventional bank loans, lines of credit, or revenue-based financing through a lending marketplace.
- If you are a manufacturer, this is the best time in years to apply for SBA financing. Fee waivers through FY2026 and the new MARC program create significant savings.
- If you have outstanding MCA debt, plan for it. It cannot be refinanced with SBA proceeds and will count against your qualification ratios.
- If you are planning a partner buyout, understand the new seller note limits and the 24-month active participation requirement for complete buyouts.
Navigating these changes on your own takes time. Halford Capital stays current on every SBA policy shift and matches your application to lenders who are best positioned to approve your deal under the current rules. Start your application and we will guide you through it.