Big change for California: No more SBA loans for non-citizens

Green-card holders no longer qualify for loans from the Small Business Administration, eliminating a longtime source of financing for immigrants that advocates say will discourage job creation and harm the economy.

The SBA implemented this policy shift in March, restricting access to its loans to U.S. citizens and nationals only, then expanded the restriction to SBA-backed loans in April. The change also disqualifies businesses even partially owned by permanent legal residents with green cards from receiving these loans.

California stands to be most affected by this change, as the state has both the largest number of small businesses and the largest immigrant population in the nation. SBA loans have been particularly valuable to immigrant entrepreneurs because they typically offer low interest rates and are available to those without established credit histories. The agency has also traditionally backed loans by private lenders, providing government guarantees for borrowers banks might otherwise consider risky.

Small business owners create 99% of net new jobs in California, according to the state’s Office of the Small Business Advocate. Immigrant entrepreneurs constitute 40% of California’s business community and generated $28.4 billion in income in 2023, data from the governor’s office of business and economic development shows.

Industry advocates have voiced strong opposition to the policy shift. Small Business Majority, a national business advocacy group, urged the SBA to reconsider in a mid-March letter signed by dozens of state and national organizations and chambers of commerce. The letter called the new policies “a misguided approach that ignores critical economic data underscoring the job creating power of the immigrant community.”

The SBA defended its decision, with spokesperson Maggie Clemmons explaining that the agency has limited lending capacity. “The agency’s rule change will help ensure more American citizens have access to funding previously granted to noncitizens,” Clemmons said.

According to the SBA, the agency approved 3,358 loans for small businesses owned partly by lawful permanent residents in fiscal year 2023, representing about 4% of the 85,000 loans approved. In California alone, the changes could impact approximately 220,000 small business owners who hold green cards, according to Carolina Martinez, chief executive of CAMEO Network.

“The most important thing for us is to really understand that this SBA decision is really bad for the American economy,” Martinez emphasized.

The policy change affects real entrepreneurs like Cristina Foanene, a Romanian immigrant who arrived in the United States 20 years ago. As a green-card holder in 2018, she secured an SBA loan that allowed her and her husband to purchase a building and expand their glass company in Fresno. The business now employs 30 people.

“The loan gave us an opportunity to create more jobs, to have an even greater impact in our community,” Foanene said. She recently signed her third SBA loan, but this time as an American citizen. She expressed sadness that others in her former position won’t have the same opportunities to “pursue the American Dream.”

Beyond new business formation, SBA loans have served as critical lifelines during difficult times. “During the pandemic, these loans were crucial to people’s survival,” said Dung Nguyen of California Healthy Nail Salon Collaborative, noting that many nail-salon workers and owners who took pandemic-era loans are still repaying them.

Some advocates view the policy as part of a broader trend affecting immigrants. Kenia Zamarripa of the San Diego Regional Chamber of Commerce said, “This is a community that’s doing things the right way, looking for a legal path. It’s like you’re punishing them for doing the right thing.”

Gabriela Alemán, spokesperson for Mission Asset Fund in San Francisco, expressed concern about creating “a new kind of status” for affected immigrants. Her organization provides small loans to business owners but acknowledges that such efforts can’t fully replace SBA financing.

“There are not any other options at this scale,” explained Brian Kennedy Jr. from AmPac Business Capital. “We’re talking about $35,000 up to $30 million.”

Small business owners affected by the policy change may increasingly turn to community development financial institutions and other alternative lenders. California also offers state-funded options, including a small business loan guarantee program through its IBank and programs through the treasurer’s office that reduce risks to lenders.

However, these alternatives create a more fragmented financing landscape. Pamela Deans, executive director of Microenterprise Collaborative of Inland Southern California, worries that “many of these would-be owners will have a much harder time piecing together enough safe, affordable capital to lease a space, buy equipment or cover early working capital—so the taquería, the child care business, the trucking startup may never open in the first place.”

Advocates also fear that desperate entrepreneurs may turn to predatory lenders. Bianca Blomquist of Small Business Majority cited a recent case where a child care business owner in Los Angeles took what she thought was a 13% interest loan that actually carried a rate closer to 250%.

Some remain hopeful that philanthropy and impact investors will step in to support small lenders. “Women, entrepreneurs, immigrants and communities of color always have had to think outside the typical paths,” said Leticia Landa of La Cocina, a small business incubator in San Francisco. “I do hope, especially in California, that we’re going to come up with something.”