SBA Loans Closed to Foreign Buyers: Impact on Canadian Business Acquisitions in the U.S.

A recent policy change by the U.S. Small Business Administration (SBA) presents a significant hurdle for Canadians looking to acquire U.S. small businesses. Effective March 1, 2026, SBA 7(a) and 504 loans, which have been instrumental in many sub-$5 million business acquisitions, are now completely closed to foreign buyers.

The SBA issued Policy Notice 5000-876441 on February 2, 2026, revising SOP 50 10 8. The new policy mandates that 100% of a business's direct and indirect owners must be U.S. citizens or nationals residing primarily in the U.S. The previously allowed 5% foreign ownership stake has been eliminated, and even green card holders residing in the U.S. are now excluded.

This change may stall or kill ongoing business deals that relied on SBA financing. Buyers may discover mid-diligence that their plan is no longer feasible, potentially leading to renegotiations or deal collapse. Furthermore, business entities commonly used by Canadian buyers, such as U.S. LLCs, can lead to unexpected tax consequences in Canada, including potential taxes and reporting obligations.

To ensure successful transactions, Canadian buyers should first confirm their visa pathway, such as the E-2 treaty investor visa, if they plan to actively manage the business in the U.S. Financing solutions need to be rebuilt without SBA, utilizing seller financing, private loans, or partnerships with U.S. citizens or permanent residents. Obtaining proper entity structuring and cross-border tax advice before signing is crucial.