In 2025, the U.S. Small Business Administration (SBA) has implemented significant policy changes aimed at tightening lending standards and ensuring that SBA-backed loans are directed toward eligible American entrepreneurs. These reforms, under the leadership of Administrator Kelly Loeffler, are designed to restore financial integrity to the SBA’s loan programs and prioritize support for U.S. citizens and lawful permanent residents. For small business owners seeking financing, understanding these changes is crucial to navigating the application process successfully.SBG Funding+1Small Business Lending Source+1Small Business Lending Source
Stricter Underwriting Standards
One of the most notable changes is the elimination of the “Do What You Do” underwriting standard, which previously allowed lenders considerable discretion in approving loans. This approach led to a surge in defaults and a negative cash flow of approximately $397 million in the 7(a) loan program. The SBA has now reinstated stricter underwriting criteria to ensure the program’s sustainability and protect taxpayer dollars.
Enhanced Citizenship Verification
Effective March 7, 2025, the SBA requires that businesses applying for 7(a) and 504 loans be 100% owned by U.S. citizens, U.S. nationals, or lawful permanent residents. This change eliminates previous allowances for partial foreign ownership and aims to align SBA lending practices with federal immigration policies. Lenders must now verify and enter at least 81% of beneficial ownership data into the SBA’s E-Tran system to confirm borrower eligibility. LinkedIn+5Small Business Lending Source+5CDC Small Business+5SBG Funding+1Beyond Banks+1
Restoration of Lender Fees
The SBA has reinstated lender fees that were previously waived, a move that had undermined the financial integrity of the 7(a) loan program. The waiver of these fees resulted in a significant revenue shortfall, contributing to the program’s financial challenges. By restoring these fees, the SBA aims to maintain the program’s zero-subsidy status and ensure its long-term viability.
Relocation of SBA Regional Offices
In March 2025, the SBA announced plans to relocate six of its regional offices from cities identified as “sanctuary cities.” The affected offices are located in Atlanta, Boston, Chicago, Denver, New York City, and Seattle. The SBA stated that these relocations aim to move offices to “less costly, more accessible locations that better serve the small business community and comply with federal immigration law.” SBG Funding+1BizSugar+1
Implications for Small Business Owners
These policy shifts mean that small business owners must be more diligent in preparing their loan applications. Ensuring complete and accurate documentation, verifying ownership eligibility, and understanding the reinstated lender fees are essential steps in the application process. Additionally, businesses should be aware of the potential for longer processing times due to the stricter underwriting standards and plan accordingly.
Conclusion
The SBA’s 2025 policy changes represent a significant shift in the small business financing landscape. While these reforms aim to strengthen the integrity of SBA loan programs and prioritize support for eligible American entrepreneurs, they also introduce new challenges for applicants. Small business owners must stay informed and adapt to these changes to successfully secure financing and support their business growth.
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