Trump-Era SBA Eliminates DEI, Tightens Underwriting And Citizenship Requirements

The Small Business Administration (SBA) under the second Trump term does not seem to be signaling support for its core constituents: small businesses. Notwithstanding the toll of Trump’s tariff policy or the potential long-term agricultural supply chain crises and manufacturing labor shortages due to immigration policies, the administration has now made access to credit even more difficult for small businesses.

As of this month, a slew of changes went into effect at the SBA, primarily affecting its most popular 7(a) loan program, which will make it even more difficult for small business owners to secure financial support. Recent changes include tighter ownership and citizenship requirements, stricter underwriting standards, fee changes and more.

The one possible bright side to these changes is that they expand lending limits for manufacturers – increasing the maximum loan amount from $5 million to $10 million for both 7(a) and 504 programs. At the same time, the SBA is tightening up underwriting requirements for the 7(a) program at large, and lenders must now follow specific SBA guidelines which virtually return the program to its standards before 2023.

The latest SBA loan changes include:

• All loans now require collateral beginning at a $50,000 threshold.
• For any changes of ownership and for new startups, borrowers must contribute 10% of project costs in equity.
• The maximum threshold for 7(a) Small loan was lowered to $350,000 while minimum credit score requirements went up 10 points to 165.

Additionally, any business seeking an SBA loan must be 100% owned by a U.S. citizen; that is a major increase compared to the past requirement that a U.S. citizen owns 51% of the entity. That means if a business even has an investor without a Social Security number it will no longer be eligible for SBA support. Business owners interested in a loan must also have been a permanent U.S. resident for the past six months.

“Overall, the SBA announced many changes to their loan programs. Their loans are likely going to be harder to obtain due to their new, stricter standards,” stated a notice from Stony Hill Advisors, an M&A focused firm for small businesses.

Under the Biden Administration, credit requirements were loosened to allow capital to flow more freely; the former president also allowed beyond traditional banks to become lenders, leading to an uptick in small loans allocated to businesses owned by women and people of color, per The New York Times.

In its typical fashion, Trump Administration SBA head Kelly Loeffer is now blaming those changes, and the diverse base of recipients they supported, on the increased default rates for SBA-backed loans. Per an independent analysis by Lumos Data, cited by the New York Times, weaker underwriting coupled with rising interest rates are both factors in growing default rates.

Under Loeffer, the SBA has cut staff by nearly 43%, about 2,700 employees, and dismantled nearly all diversity, equity and inclusion (DEI) related programs.

Programs such as the state of California’s Inclusivity Project, which provided mentorship to Black-owned businesses, as well as the approximately 150 women’s business centers funded by the SBA and housed in nonprofits around the country, have been shut down. Trump’s proposed budget bill would cut SBA funding by a third and also eliminate 28 offices that serve veteran-owned businesses.