Los Angeles County supervisors have taken a controversial stance by voting to challenge a new federal policy that limits access to Small Business Administration (SBA)-backed loans to U.S. citizens, excluding lawful permanent residents — often referred to as green card holders. The decision comes after the SBA, under then-Administrator Kelly Loeffler, issued a policy notice in February 2021 stating that all direct and indirect owners of a small business applicant must be U.S. citizens or nationals with their principal residence in the United States, its territories, or possessions.

Impact on Immigrant-Owned Businesses

The policy, effective March 2021, aims to ensure that federal loan programs prioritize American citizens. However, Los Angeles County supervisors, including Hilda Solis and Holly J. Mitchell, have expressed strong opposition, arguing that the rule threatens the survival of immigrant-owned small businesses that have long been integral to the local economy.

“SBA’s new rule limiting small business loans to only U.S. citizens — excluding permanent residents — threatens the survival of immigrant-owned small businesses that have long contributed to our local economies,” Solis said in a statement. She emphasized the economic contributions of immigrant communities, many of whom are long-term residents and entrepreneurs.

Legal and Policy Challenges

The Board of Supervisors approved a motion directing county legal staff to explore litigation against the federal rule. The lawsuit is expected to argue that the policy violates the Administrative Procedures Act (APA), which requires federal agencies to follow proper procedures when making regulatory changes.

Supervisor Holly J. Mitchell framed the policy as part of a broader pattern of federal actions that disproportionately affect immigrant communities and communities of color. “This is not accidental. We are witnessing the deliberate construction of a systematically racist system designed to marginalize immigrant communities and communities of color,” she said in a public statement.

However, critics argue that the policy does not target immigrants in a racially discriminatory way. African-Americans, for example, are all U.S. citizens and would not be affected by the rule. In fact, the policy may benefit African-American entrepreneurs, who are often underrepresented in small business ownership.

“Citizenship isn’t racist. African-Americans all have U.S. citizenship. This would actually advantage African-American entrepreneurs, but Mitchell obviously doesn’t care about them because they’re not the ones funding her,” an anonymous commentator noted in a separate analysis.

What’s Next in the Legal Battle

The legal challenge is expected to follow a familiar path. The lawsuit will likely cite the APA to argue that the administration’s policy change was improperly implemented. It is anticipated that sympathetic test case litigants, including a veteran, a disabled individual, and a non-cartel member, may be used to highlight the perceived hardship caused by the policy.

A federal judge may rule that the affected parties suffer “irreparable harm” if they are denied access to taxpayer-funded loans. If the case proceeds, the Trump administration is expected to appeal, and the appeals court may uphold the policy. The case could then be escalated to the Supreme Court, where it would likely be delayed behind hundreds of other pending cases.

The dispute highlights a broader debate over the role of federal policy in supporting small businesses and the balance between prioritizing American citizens versus allowing access to non-citizens, particularly those who are lawful permanent residents.

With the federal rule in place, the outcome of this legal challenge could have significant implications for immigrant entrepreneurs across the country. If the policy is upheld, it may shift the focus of small business loan programs toward U.S. citizens, potentially altering the landscape of entrepreneurship in the U.S.