Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- The House passed legislation prohibiting noncitizens from receiving loans guaranteed by the SBA, increasing controversy regarding borrower access.
- Proponents of the bill contend that it protects public funds, while opponents say the bill inhibits economic investment by immigrant entrepreneurs.
- Other legislation in 2025 proposes to transform the access to capital to small businesses.
The U.S. House of Representatives has passed a bill that has the potential to disrupt lending to thousands of small business operators, which could shift borrowers toward subprime lenders.
Small business lenders are dealing with a round of federal and state bills slated to redirect the manner in which credit is extended. If mainstream lenders pull back from small business lending due to compliance burdens, subprime lenders could face less competition — especially in high-risk or non-traditional credit segments.
The American Entrepreneurs First Act of 2025 (H.R. 4665) would prevent the Small Business Administration from lending to noncitizens, regardless of whether they are legally in the U.S. on work visas.
The bill, which is now headed to the Senate, cleared the chamber on a vote of 217–190, with eight Democrats joining Republicans in support of the bill.
The sponsors of the bill assert that it’s trying to close a loophole in funding by taxpayers. Representative Beth Van Duyne (R-TX), the primary sponsor of the bill, said the bill would close the loophole that permits taxpayer funds to be expended on business enterprises by individuals who are not U.S. citizens.
It’s about fairness, say proponents of the bill, asserting that federal funds must remain with those who have established roots.
Not everyone agrees. Critics note that foreign-born entrepreneurs, including those who have gained legitimate visas, are already confronted with significant lending barriers. To enact into law existing SBA restrictions would leave out temporary residents who would be eligible under current regulations.
Lending Community Responds
Community Development Financial Institutions and banks in many areas see immigrant-owned businesses as pillars of the local economy. Locking out even some segments of those borrowers can have unforeseen ripple effects.
Organizations such as the National Association of Latino Community Asset Builders argue that turning commercial lending into political football makes it more difficult to close lending gaps for underserved communities.
For small business owners — and especially immigrants and first-time borrowers — SBA loans are often the only game in town.
More Shake-Ups on the Lending Horizon
This is not the only curveball small business lenders are dealing with in 2025. A full round of federal and state bills is slated to redirect the manner in which credit is extended.
The hot-button item is the proposed elimination of the provision in the Dodd-Frank Act, Section 1071, which requires lenders to collect demographic information on borrowers. H.R. 976 and the identical Senate bill, S. 557, would eliminate the requirement.
The case in favor of the bill is that the rule is bureaucratic. But the position critics take is that if the data are not collected, discrimination is more difficult to identify. The House also approved a bill to relocate SBA offices from sanctuary cities.
Another bill approved in the House early this year is the Loan Agent Oversight Act (H.R. 1804). It promotes regulations on those dealing with the SBA’s 7(a) program to prevent fraud, which has reportedly cost over $300 million. The bill has wide support, though putting it into practice could be challenging.
The American Entrepreneurs First Act of 2025 joins several other bills and laws shaking up the small business landscape in 2025.
On the state level, New York’s proposed FAIR Business Practices Act is under fire and being praised in equal parts. Supported by Attorney General Letitia James, it seeks to crack down on predatory lenders preying on small businesses. Critics argue that the bill would unleash a tide of litigation. Supporters say it is long past due.
On top of all that is the shift away from Biden-era policies. In April, the SBA replaced previous administration underwriting standards with more stringent ones. That is to say, tighter screens on borrowers, particularly margin borrowers.
Meanwhile, around the same time, the Consumer Financial Protection Bureau put on hold enforcement of its data rule 1071 outside of the Fifth Circuit, following some back-and-forth in the courts. So regulations can now differ by where you’re lending — a headache on compliance if ever there was one.
And let’s not overlook community lending. A planned executive order in March 2025 cuts funding to the Community Development Financial Institutions Fund, which is a stalwart backstop for underserved entrepreneurs. If that happens, quite a number of mission-driven lenders will be forced to retrench.
Put them together with the rest, and what you have is a tinder box of volatility: blow-ups in the legislature, rule changes, and more controversy about who can get access to credit — and on which terms. For both lenders and borrowers, 2025 is looking like anything but stable.
