[Congressional Record Volume 172, Number 114 (Tuesday, July 14, 2026)]
[Senate]
[Pages S3929-S3931]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
U.S. GOVERNMENT ACCOUNTABILITY OFFICE DETERMINATION LETTER
Mr. MARKEY. Mr. President, I ask unanimous consent that the
Government Accountability Office's determination letter on the matter
of ``U.S. Small Business Administration--Applicability of the
Congressional Review Act to Policy and Procedural Notices Updating
Citizenship and Residency Requirements for 7(a) and 504 Loans,'' dated
July 1, 2026, be printed in the Congressional Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Decision
Matter of: U.S. Small Business Administration--Applicability
of the Congressional Review Act to Policy and Procedural
Notices Updating Citizenship and Residency Requirements
for 7(a) and 504 Loans.
File: B-338157.
Date: July 1, 2026.
digest
In February 2026, the U.S. Small Business Administration
(SBA) issued a Policy Notice and a Procedural Notice
(together, the 2026 Notices) that modified its standard
operating procedures governing the 7(a) and 504 loan
programs. Through the 2026 Notices, SBA began requiring that
100 percent of all direct and/or indirect owners of a small
business applicant for one of the loan programs be U.S.
citizens or U.S. nationals who have their principal residence
in the U.S., its territories, or possessions.
The Congressional Review Act (CRA) requires that before a
rule can take effect, an agency must submit the rule to both
the House of Representatives and the Senate, as well as the
Comptroller General. CRA adopts the definition of a rule
under the Administrative Procedure Act (APA) but excludes
certain categories of rules from coverage. We conclude that
the 2026 Notices meet the APA definition of a rule and no CRA
exception applies. Therefore, the 2026 Notices are a rule
subject to CRA's submission requirements.
decision
On February 2, 2026, the U.S. Small Business Administration
(SBA) issued a Policy Notice, and on February 11, 2026, SBA
issued a Procedural Notice (together, the 2026 Notices). The
2026 Notices modified SBA's standard operating procedure
(SOP) 50 10, Lender and Development Company Loan Programs,
which contains SBA's loan origination policies and procedures
governing its 7(a) and 504 loan programs. After the 2026
Notices took effect on March 1, 2026, 100 percent of all
direct and/or indirect owners of a small business applicant
were required to be U.S. citizens or U.S. nationals who have
their principal residence in the United States, its
territories, or possessions.
We received a request for a decision as to whether the 2026
Notices are a rule for purposes of the Congressional Review
Act (CRA). Our practice when rendering decisions is to
contact the relevant agencies to obtain factual information
and their legal views on the subject of the request.
Accordingly, we reached out to SBA on March 3, 2026. SBA did
not provide a response with its views.
background
7(a) and 504 Loans
SBA guarantees loans to small businesses through several
programs, including the 7(a) and 504 loan programs. In fiscal
year 2025, SBA guaranteed approximately $45 billion in 7(a)
and 504 loans to more than 85,000 small businesses. According
to SBA, the 7(a) loan program is SBA's primary business loan
program for providing financial assistance to small
businesses. For 7(a) loans, a lender initiates the loan to a
small business and, if SBA agrees to guarantee the loan, the
lender funds and services the loan. If the borrower defaults
on the loan, the lender and SBA share in the loss, if any, in
accordance with the percentage guaranteed by SBA. For most
7(a) loan programs, SBA guarantees up to 85 percent of loans
of $150,000 or less, and up to 75 percent of loans above
$150,000, except as otherwise authorized by law.
Similarly, the 504 loan program provides long-term, fixed
rate financing for major fixed assets that promote business
growth and job creation. According to SBA, 504 loans are
issued through a partnership with Certified Development
Companies (CDC) and private sector third party lenders. CDCs
are generally non-profit corporations certified and regulated
by SBA to package, process, close, and service 504 loans. For
504 loans, up to 40 percent of the loan is covered by the
CDC, and SBA guarantees 100 percent of that amount. The
remainder of the 504 loan amount is financed through a
contribution by the applicant small business and from third
party lenders.
To implement its programs, SBA provides guidance to
relevant parties--including lenders, SBA employees, and
various agency partners--through several categories of
documents. According to SBA, policy notices are used to
convey a change in policy, while procedural notices are used
to convey a change in process or procedures. Both policy
notices and procedural notices may be permanent or temporary.
SBA's SOPs are permanent directives that set forth the
policies and procedures relating to SBA's programs and
activities. SBA's regulations note that lenders must comply
with loan program requirements for the 7(a) and 504 programs,
which include SBA SOPs.
SOP 50 10
SBA's SOP 50 10, Lender and Development Company Loan
Programs, contains SBA's loan origination policies and
procedures governing the 7(a) and 504 loan programs. The most
recent version of SOP 50 10, version 8, took effect on June
1, 2025 (SOP 50 10 8, or the SOP). The SOP provides
requirements that lenders and CDCs must follow when
administering loans under the 7(a) and 504 programs.
For example, Section A of the SOP, entitled ``Core
Requirements for All 7(a) and 504 Loans,'' states that ``7(a)
Lenders and CDCs . . . must always start by reviewing the
contents of this section.'' The SOP also states that ``7(a)
Lenders must comply with the Core requirements in Section A
and with the detailed guidance provided for each delivery
method in the applicable chapter of Section B'' and that
``CDCs must comply with the Core requirements in Section A
and with the detailed guidance provided for the delivery of
504 Loan Program loans.''
Chapter 1 of Section A outlines the primary applicant
eligibility requirements for the 7(a) and 504 loan programs.
In particular, Paragraph F of Chapter 1 provides additional
information regarding the loan eligibility of businesses
owned by non-U.S. citizens. Prior to the changes made by the
documents examined in this decision, the SOP stated that,
among other things, ``SBA financing is limited to businesses
with 100% direct and/or indirect owners and SBA-required
guarantors . . . that are U.S. citizens, U.S. Nationals, or
who are Lawful Permanent Residents (LPRs) (commonly referred
to as ``green card holders''), and comply with the
requirements in this Paragraph.'' All direct and indirect
owners and guarantors were also required to
[[Page S3930]]
have their primary residence in the United States, its
territories, or possessions.
The SOP also requires that SBA lenders certify that no
direct and/or indirect owner or guarantor is an ``Ineligible
Person.'' In part, the SOP previously defined ineligible
persons for the purpose of 7(a) and 504 loans as ``foreign
nationals, those granted asylum, refugees, visa holders,
nonimmigrant aliens under 8 U.S.C. Sec. 1101(a)(15), those
under Deferred Action for Childhood Arrivals . . . and
undocumented aliens who are in the U.S. illegally.''
On December 19, 2025, SBA issued Procedural Notice 5000-
872050 (2025 Procedural Notice). The 2025 Procedural Notice
is addressed to all SBA employees, 7(a) lenders, and CDCs,
and announced that, among other changes, SBA was revising
Section A, Chapter 1, Paragraph F of SOP 50 10 8. In
particular, the 2025 Procedural Notice stated that while the
general rule remained that 100 percent of all direct and/or
indirect owners of applicant businesses must be U.S.
citizens, U.S. nationals, or LPRs who have their principal
residence in the United States, its territories, or
possessions, the following groups would be allowed to have up
to five percent direct and/or indirect ownership in a
borrower in the aggregate: (1) Individuals who are not U.S.
citizens, U.S. nationals, or LPRs, and are not ineligible
persons but are instead foreign nationals living outside the
U.S.; (2) U.S. citizens, U.S. nationals, or LPRs whose
principal residence is outside the U.S., its territories, or
possessions; and (3) aliens with conditional LPR status
(collectively, the Five Percent Exception). These changes
took effect for all 7(a) and 504 loan applications approved
by SBA on or after January 1, 2026.
Policy Notice and Procedural Notice
In 2026, SBA issued Policy and Procedural Notices that
further modified the eligibility and selection criteria for
7(a) and 504 loans. On February 2, 2026, SBA published the
Policy Notice. The Policy Notice, which is also addressed to
all SBA employees, 7(a) lenders, and CDCs, announced the
rescission of the 2025 Procedural Notice, thereby removing
the Five Percent Exception. Beginning March 1, 2026, 100
percent of all direct and/or indirect owners of a small
business applicant were required to be U.S. citizens or U.S.
nationals who have their principal residence in the U.S., its
territories, or possessions. LPRs would no longer be eligible
to own any percentage interest in an applicant borrower,
among other things.
The Policy Notice notes that it made these changes
consistent with 13 C.F.R. Sec. 120.100 and Executive Order
No. 14159, Protecting the American People Against Invasion.
The Executive Order states that it ``ensures that the Federal
Government protects the American people by faithfully
executing the immigration laws of the United States,'' and
instructs the Office of Management and Budget to ensure that
agencies take action to ``identify and stop the provision of
any public benefits to any illegal alien not authorized to
receive them.'' 13 C.F.R. Sec. 120.100 outlines the basic
eligibility requirements for applicants for SBA business
loans.
Then, on February 11, 2026, SBA published the Procedural
Notice. SBA stated that the purpose of the Procedural Notice
was to advise SBA employees, 7(a) lenders, and CDCs that it
was incorporating the changes announced in the Policy Notice
into SOP 50 10 8. Under the revised SOP, Section A, Chapter
1, Paragraph F states that ``SBA financing is limited to
business Applicants with 100% direct and/or indirect owners
and SBA-required guarantors, all of whom must be U.S.
Citizens or U.S. Nationals who have their Principal Residence
in the United States, its territories, or possessions.''
Furthermore, the Procedural Notice updated the definition
of ``Ineligible Person'' to include LPRs, ``including
individuals with permanent (Unconditional) LPR status, and
Conditional LPR status.'' An applicant borrower with any
percentage interest held by LPRs who did not completely
divest their interest prior to the issuance of an SBA loan
number would be ineligible for 7(a) and 504 loans under the
revised criteria. The changes took effect on March 1, 2026,
for 7(a) and 504 loans approved under delegated procedures,
and for non-delegated 7(a) and 504 applications that
entered Reviewer 1, or R1, status in SBA's online system
on or after March 1, 2026.
Finally, on March 31, 2026, SBA issued guidance clarifying
the 2026 Notices (Guidance). Among other things, the Guidance
states that for loans approved prior to the March 1, 2026,
effective date of the 2026 Notices, lenders may continue to
perform servicing actions but ``may not increase an existing
loan if the Applicant is not eligible under the revised
citizenship and residency requirements on or after March 1,
2026.''
The Congressional Review Act
CRA, enacted in 1996 to strengthen congressional oversight
of agency rulemaking, requires federal agencies to submit a
report on each new rule to both houses of Congress and to the
Comptroller General for review before a rule can take effect.
The report must contain a copy of the rule, ``a concise
general statement relating to the rule,'' and the rule's
proposed effective date. CRA allows Congress to review and
disapprove of federal agency rules for a period of 60 days
using special procedures. If a resolution of disapproval is
enacted, then the new rule has no force or effect.
CRA adopts the definition of rule under the Administrative
Procedure Act (APA), which states that a rule is ``the whole
or a part of an agency statement of general or particular
applicability and future effect designed to implement,
interpret, or prescribe law or policy or describing the
organization, procedure, or practice requirements of an
agency.'' However, CRA excludes three categories of rules
from coverage: (1) rules of particular applicability; (2)
rules relating to agency management or personnel; and (3)
rules of agency organization, procedure, or practice that do
not substantially affect the rights or obligations of non-
agency parties.
SBA did not submit a CRA report to Congress or to the
Comptroller General on the 2026 Notices.
discussion
At issue here is whether the 2026 Notices meet CRA's
definition of a rule, which adopts APA's definition of a rule
with three exceptions. As explained below, we conclude that
the 2026 Notices meet the APA definition, and no exceptions
apply. Therefore, the 2026 Notices are a rule subject to
CRA's submission requirements.
The 2026 Notices are a Rule Under APA
Applying APA's definition of a rule, the 2026 Notices
satisfy all three elements. First, the 2026 Notices are
agency statements because they were issued by SBA, an
independent agency of the federal government.a Second, the
2026 Notices are of future effect because they adopt new
criteria for 7(a) and 504 loan applications moving forward.
As SBA noted, beginning March 1, 2026, only applications from
businesses with 100% ownership by U.S. citizens or U.S.
nationals are eligible for 7(a) and 504 loans.
Finally, the 2026 Notices implement, interpret, or
prescribe law or policy. The 2026 Notices revise SBA's SOP
and modify the eligibility requirements for the 7(a) and 504
loan programs. Additionally, the Policy Notice states that
the changes it announces implement in part the
administration's immigration policies, as outlined in
Executive Order No. 14159. Furthermore, the Procedural Notice
notes that it incorporates into the SOP ``the updated policy
requirements'' that 100 percent of all direct and/or indirect
owners of a small business applicant be U.S. citizens or U.S.
nationals who have their principal residence in the U.S., its
territories, or possessions. Together, the 2026 Notices
therefore prescribe and implement policy determinations made
by SBA relating to the eligibility requirements for its loan
programs.
CRA Exceptions
Having concluded that the 2026 Notices satisfy the APA
definition of a rule, we must next determine whether any of
CRA's three exceptions apply. CRA provides for three types of
rules that are not subject to its requirements: (1) rules of
particular applicability; (2) rules relating to agency
management or personnel; and (3) rules of agency
organization, procedure, or practice that do not
substantially affect the rights or obligations of non-agency
parties.
(1) Rule of Particular Applicability
First, the 2026 Notices are a rule of general
applicability, rather than particular applicability. Rules of
particular applicability are rules addressed to specific,
identified persons or entities and determine actions that
person or entity may or may not take, considering facts and
circumstances specific to those persons or entities. Here,
the 2026 Notices announce changes that are incorporated into
the SOP that apply to all 7(a) and 504 loan applications. The
2026 Notices do not take into account the particular facts
and circumstances of any individual lender or applicant when
determining whether the 2026 Notices apply to it. Rather, all
lenders and CDCs are required to adhere to the changes
outlined in the 2026 Notices. Therefore, it is not a rule of
particular applicability.
(2) Rule of Agency Management or Personnel
Second, the 2026 Notices are not a rule of agency
management or personnel. We have previously held that rules
that fall into this category relate to purely internal
matters, such as controlling, directing, or supervising
internal management issues. We have previously noted that
these rules include ``rules as to leaves of absence,
vacation, travel, etc.'' For example, in B-335115, Sept. 26,
2023, we concluded that Department of Defense (DOD) memoranda
implementing changes to DOD's policies regarding service
members' healthcare ``address matters that clearly and
directly implicate agency personnel matters'' and ``concern
communications between employees and managers, leave, and
benefits.''
Here, the 2026 Notices do not concern purely internal
matters. While both the Policy Notice and the Procedural
Notice are addressed in part to SBA employees, they are also
addressed to 7(a) lenders and CDCs. SBA's regulations state
that ``[l]enders, CDCs and their contractors are independent
contractors that are responsible for their own actions with
respect to a 7(a) or 504 loan.'' Additionally, the 2026
Notices do not address the kind of management or personnel
issues we have previously determined fall under this
exception. Unlike in B-335115, Sept. 26, 2023, the 2026
Notices are not concerned primarily with the internal
operations of the agency or management of its personnel.
Rather, the 2026 Notices are intended to provide new criteria
that lenders must adhere to in the administration of the 7(a)
and 504 loan programs--including what kinds of applications
should no longer be accepted. The 2026 Notices also outline
new criteria for applicants to adhere to in order to
[[Page S3931]]
have their applications considered and accepted by SBA,
lenders, and CDCs. Therefore, the 2026 Notices are not a rule
of agency management or personnel.
(3) Rule of Agency Organization, Procedure, or Practice
With No Substantial Effect on Non-Agency Parties
Third, the 2026 Notices do not satisfy the exception for
rules of agency organization, procedure, or practice that do
not substantially affect the rights or obligations of
nonagency parties. We have previously explained that this
exception was modeled on the APA exception to notice-and-
comment rulemaking requirements for ``rules of agency
organization, procedure, or practice.'' Some courts have
limited the APA exception to rules that do not have a
substantial impact on non-agency parties, which is
incorporated into the language of the CRA exception.
Therefore, we look to caselaw concerning the APA exception
for guidance. The purpose of the APA exception is to ensure
``that agencies retain latitude in organizing their internal
operations,'' so long as such rules do not alter the rights
or interests of parties.
First, we must first determine whether the 2026 Notices are
a rule of agency organization, procedure, or practice. Rules
of agency organization, procedure, or practice are ``limited
to an agency's methods of operation or how the agency
organizes its internal operations,'' including the way that
regulated entities submit information to an agency, how the
agency reviews that information, and rules that affect the
type or timing of actions the agency will take based on that
submission. Following this principle in the CRA context, we
have only applied CRA's third exception to rules that
primarily focus on the internal operations of an agency. In
contrast, rules that are directed at and primarily concerned
with the behavior of non-agency parties do not fall under the
exception.
For instance, in B-329926, Sept. 10, 2018, we found that
updates to a Social Security Administration (SSA) hearing
manual governing SSA adjudicators' use of information from
the internet qualified as a rule of agency organization,
procedure, or practice. There, the manual outlined procedures
for SSA employees to follow in processing and adjudicating
benefits claims. Because the manual was directed to and
binding only on SSA officials without imposing new burdens on
claimants, we concluded that the manual met CRA's third
exception. Similarly, in B-337895, Mar. 24, 2026, we
determined that a U.S. Army Corps of Engineers manual was a
rule of agency organization, procedure, or practice, because
it was also directed at agency personnel and identified and
delineated procedures for agency staff to follow.
Here, on the other hand, the 2026 Notices are not a rule of
organization, procedure, or practice. The 2026 Notices do in
part direct the behavior of SBA employees when evaluating and
processing applications for 7(a) and 504 loans. However,
unlike in B-329926, Sept. 10, 2018, and B-337895, Mar. 24,
2026, the 2026 Notices also modify the requirements that non-
agency parties including lenders and CDCs must follow when
processing applications. The changes made by the 2026 Notices
are primarily concerned with which applicants are eligible to
apply and have their applications considered for 7(a) and 504
loans by lenders and CDCs. As a result, these changes are not
primarily focused on the internal operations of the agency
and therefore the 2026 Notices are not a rule of
organization, procedure, or practice.
Furthermore, the 2026 Notices cannot fall under this
exception because they have a substantial effect on non-
agency parties. In the federal funding context, we have
previously determined that rules amending or clarifying the
requirements of existing financial assistance programs for
non-agency parties substantially affect those parties' rights
or obligations. Where a rule modifies an existing financial
assistance program through actions such as defining
eligibility requirements and selection criteria, it has a
substantial effect on non-agency parties who participate in
the program.
Here, the 2026 Notices modify the eligibility and selection
criteria for 7(a) and 504 loans. For example, prior to the
2026 Notices, LPRs who had their principal residence in the
United States, its territories, or possessions could be 100
percent direct and/or indirect owners of applicant borrowers.
Additionally, U.S. citizens, U.S. nationals, and LPRs who had
their principal residence outside the United States, its
territories, or possessions could own up to five percent of
an applicant borrower in the aggregate pursuant to the Five
Percent Exception. However, through the 2026 Notices, the
Five Percent Exception was removed, and LPRs were added to
the definition of ineligible persons. As a result, beginning
March 1, 2026, LPRs could no longer own any percentage
interest in an applicant borrower. The 2026 Notices also
expand the definition of ineligible person to include other
groups, such as individuals--including U.S. citizens and U.S.
nationals--who have their principal residence outside of the
United States, its territories, or possessions. The 2026
Notices therefore substantially affect lenders who administer
the loan programs and the prospective borrowers who apply for
the loans. As a result, no CRA exception applies to the 2026
Notices.
conclusion
The 2026 Notices are a rule for purposes of CRA because
they meet the APA definition of a rule and no CRA exception
applies. Therefore, the 2026 Notices are subject to CRA's
requirement that it be submitted to Congress and the
Comptroller General before they can take effect.
Edda Emmanuelli Perez,
General Counsel.
____________________