The Small Business Administration (SBA) recently issued Procedural Notice 5000-876626, updating standard operating procedure (SOP) 50 10 8 to incorporate major policy changes. Effective March 1, 2026, all direct and indirect owners of a small business applicant must be U.S. citizens or U.S. nationals whose principal residence is in the United States, its territories or possessions.

Understanding the Changes

These changes will apply to all 7(a) and 504 loans approved on, or after, the March 1 effective date.

A guarantor exception allows a limited, or supplemental guarantor, to be an ineligible person (except an undocumented alien) when the guaranty is a supplemental guaranty required by the lender, or when the guaranty is a spousal guaranty necessary to support the pledge of jointly held collateral required by the SBA.

The notice also provides an updated definition for “ineligible person” defining it as the following:

1. Undocumented aliens who are in the U.S. illegally.
2. An individual granted asylum, a refugee, a visa holder, a non-immigrant alien under 8 U.S.C. § 1101(a)(15) or those under Deferred Action for Childhood Arrivals (DACA).
3. An individual, including a visa holder, who is not a U.S. citizen or U.S. national (non-resident aliens).
4. An individual (including U.S. citizens and U.S. nationals) who has their principal residence outside of the United States, its territories or possessions.
5. A business concern or entity created, organized or incorporated outside of the United States, its territories or possessions.
6. An individual who is a citizen of the People’s Republic of China, or the Special Administrative Region of Hong Kong.
7. A lawful permanent resident (LPRs) (commonly referred to as “green card holders”), including individuals with permanent unconditional) LPR status and conditional LPR status.
8. An individual, business concern or entity on the Office of Foreign Assets Control (OFAC) sanctions list.

Other eligibility requirements state if at the time of application, or during a six-month lookback period, an owner is an ineligible person, the business is ineligible, unless that person completely divests their ownership prior to the date of issuance of the SBA loan number. Undocumented aliens who are in the U.S. illegally may not be an officer, director or employee of the applicant business.

When the applicant business has other businesses report their taxes on the applicant business’s tax returns, all the businesses on the tax return are subject to these requirements. However, affiliate businesses and partially owned subsidiaries that do not report their taxes on the applicant business’s tax returns are not subject to these requirements.

Remaining Compliant

As with all other procedural notices, it’s important to be aware of the changes to remain compliant with SBA SOP requirements. Looking for assistance with your next SBA loan review? With a thorough understanding of the SBA SOP requirements and over 16,000 SBA loan reviews under our belt, Doeren Mayhew’s bank and credit union pros stand ready to assist.