New SBA Policy Notice 5000-876441: What San Diego Business Owners Need to Know Before March 1

The landscape of small business lending in Southern California just shifted. On February 2, 2026, the Small Business Administration (SBA) issued Policy Notice 5000-876441, introducing the strictest ownership requirements in the history of the 7(a) and 504 loan programs.

Effective March 1, 2026, SBA-backed loans will be exclusively restricted to businesses that are 100% owned by U.S. Citizens or U.S. Nationals who maintain their principal residence in the United States.

For the diverse business community in San Diego—where immigrant entrepreneurs and international partnerships drive our local economy—this change is a significant barrier. At our firm, we believe an update isn’t enough; you need a tactical plan to keep your deals alive.

The Reality: Who is Ineligible?

Previously, the SBA allowed for limited non-citizen ownership. Under the new notice, those doors are closing entirely.

• Lawful Permanent Residents (Green Card Holders): Effective March 1, LPRs are no longer eligible to own any percentage of a business seeking an SBA loan.
• Rescission of the 5% Rule: The previous allowance for up to 5% non-citizen ownership has been rescinded.
• Direct and Indirect Ownership: This rule applies to everyone on your “cap table.” If a holding company or a minor partner has non-citizen ownership, the entire deal is disqualified.

The Solution: How to Protect Your Deal

If you have a business acquisition or expansion project in progress, do not panic. We are currently implementing three primary strategies for our Southern California clients to navigate these changes:

1. The “Sprint to the Finish”

The new rules apply to applications that do not have an SBA Loan Number by February 28. If your package is nearly complete, we need to push for immediate submission. Securing a loan number before the March 1 deadline is the only way to be grandfathered in under the current, more flexible rules.

2. Strategic Ownership Restructuring

For businesses with minority partners who are Green Card holders, restructuring may be the only path to SBA eligibility. This involves:

• Equity Buy-outs: Utilizing bridge financing to buy out the non-citizen partner’s stake.
• Debt Conversion: Converting an equity position into a debt position. This must be handled with extreme care to ensure it meets strict SBA “control” and “affiliation” standards.

3. Conventional and Alternative Capital

SBA is not the only option for San Diego businesses. Because we are rooted in the local market, we have access to alternative capital paths that do not have these same citizenship restrictions:

• Conventional Commercial Loans: Many local lenders offer competitive rates for strong businesses that no longer fit the SBA “box.”
• State-Specific Guarantees: Programs like the California IBank can often provide the credit enhancement needed to close a deal without federal backing.

Why Local Expertise in Chula Vista Matters

Lending is personal, especially in a market as unique as San Diego. National “fintech” lenders often lack the nuance to handle these complex residency issues or the direct relationships with local SBA specialists needed to move quickly.

Based here in Chula Vista, we are working around the clock to ensure local deals don’t fall through the cracks of this sudden policy shift.

Don’t Wait for the Deadline

If you are unsure if your current business structure meets the new 100% U.S. Citizen requirement, every day counts. We can review your cap table, identify potential roadblocks, and pivot to a solution that keeps your business goals on track.

Contact our office today for a confidential review of your eligibility and to discuss your funding alternatives.