"She's only got 5%. It's basically nothing." Then the lender asked one question about the cap table, and a $300,000 SBA 7(a) loan stopped cold. The co-founder with the 5% stake had a green card, not a passport.
This is general information, not legal or financial advice. Confirm every rule against the current SOP and your lender before you sign anything.
The one tip
Under SBA SOP 50 10 8.1 (effective October 1, 2026), every owner of the business has to be a U.S. citizen or U.S. national whose main home is in the United States. Not most owners. 100% of them, direct and indirect, plus every guarantor SBA requires. The older regulation text at 13 CFR 120.110(e) still suggests some non-citizen-owned businesses may qualify; SBA's current SOP is the rule lenders follow, so confirm with your lender.
The part that surprises founders: a green card is not enough. The SOP's list of "Ineligible Persons" (Appendix 3) names lawful permanent residents, both conditional and unconditional. It also lists Visa holders, DACA recipients, asylees and refugees, U.S. citizens who live abroad, and companies organized outside the U.S. There is no minimum stake. A 5% owner counts the same as a 50% owner.
Three details matter when you fix it:
- The exit has to be complete. An ineligible owner must fully divest before SBA issues the loan number. Dropping from 5% to 1% doesn't work.
- The lender looks back six months. Anyone who owned part of the business in the six months before the loan number counts, which is why the lender will want proof the exit really happened.
- Holding companies count too. A Delaware LLC sitting on your cap table is fine. A holdco formed in another country makes the business ineligible.
One narrow exception: a person on that list (other than someone here illegally) can still sign a limited guaranty when the lender requires one, or when SBA needs it because they co-own collateral, like a house held with a spouse. Ownership is the line that can't be crossed.
Worked example
A three-founder DTC skincare brand applies for a $300,000 7(a) Small loan to fund inventory and a warehouse lease. The 7(a) Small ceiling is $350,000, so the size works.
Cap table at application:
- Ava, U.S. citizen: 60%
- Marcus, U.S. citizen: 35%
- Lena, green-card holder and early product lead: 5%
Ava and Marcus are fine. Lena's 5% makes the whole business ineligible, no matter how strong the cash flow looks.
The fix: Ava and Marcus buy out Lena's full 5% before the loan number issues. Say the company is valued at $400,000 for the buyout (an example number, not an appraisal). That's an example buyout price of $20,000 for her stake, paid from the founders' own cash, with a signed transfer agreement and an updated operating agreement.
Lena can stay on as a paid employee. The SOP's bar on officers, directors and employees applies only to people in the U.S. illegally, not to green-card holders. She just can't own any of it.
Skip the fix and the cost isn't a higher rate. It's no SBA loan at all, plus weeks lost in underwriting before anyone notices.
Do this week
Pull your real cap table, including advisor grants, any SAFEs or notes that could convert, and any entity that owns shares. List every owner and their citizenship status.
Flag anyone who is a green-card holder, Visa holder, DACA recipient, or a U.S. citizen living abroad, plus any entity formed outside the U.S.
If someone is on that list, plan a full buyout before the lender submits. Paper it with a transfer agreement and an updated operating agreement or stock ledger.
Ask your lender how they want the divestment documented and whether they need ownership records covering the last six months.
Ask your lender whether the buyout itself can be part of the loan or has to come from your cash. Don't assume either way.
If a non-citizen spouse co-owns collateral, ask whether a limited guaranty covers it.
Sources: SBA SOP 50 10 8.1 (Section A, Chapter 1, Para. F, Citizenship and Residency Requirements; Appendix 3, definition of Ineligible Person), download from https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs ; SBA Information Notice 5000-880695 (SOP 50 10 8.1 effective October 1, 2026), https://legacy.sba.gov/sites/default/files/2026-08/SBA%20Information%20Notice%205000-880695%20-%20Issuance%20of%20SOP%2050%2010%208.1.pdf ; SBA 7(a) loans overview, https://www.sba.gov/funding-programs/loans/7a-loans
Verified against SOP 50 10 8.1 text: October 10, 2026.