In a previous article, we shared the SBA Policy Notice 5000-865754, Policy updates to comply with Executive Order 14159 regarding citizenship requirements for obtaining 7(a) and 504 loans effective March 7, 2025. Click here to access the full notice on the SBA’s website.
One of the most common questions we are receiving from lenders since the release of the Policy Notice is whether an ineligible person (as defined in the Policy Notice) can simply transfer, or surrender, his/her ownership in the Applicant prior to the submission of an SBA loan application to ensure compliance with the citizenship requirement.
The timing of such a transfer of ownership from an ineligible person will impact whether the transfer will result in an Applicant’s eligibility. SBA guidance has traditionally held that an individual may not reduce his/her ownership in an Applicant within 6 months prior to the date of the SBA loan application for the purpose of avoiding compliance with applicable SBA requirements.
The only exception to the 6-month rule is when an individual completely divests his/her interest prior to the date of SBA loan application. Complete divestiture includes divestiture of all ownership interest and severance of any relationship with the Applicant in any capacity, including being an employee (paid, unpaid, or contracted). As such, if an Applicant is owned by any ineligible person during the 6 months prior to the date of the SBA loan application, the Applicant will not be eligible unless all ineligible persons transfer his/her ownership and completely sever any relationship with the Applicant in any capacity.
If your lending institution has questions about the SBA Policy Notice, or other SBA lending matters, please contact us at SBAQuestions@JellumLaw.com.