SBA lending is down in 2026, while credit requirements, borrowing costs and eligibility rules are changing. Here’s what California business owners should know before applying for financing.
If your California small business needs money to buy equipment, cover operating costs, hire workers or take on a new contract, getting financing may require more preparation than it did a few years ago.
But the picture is not as simple as saying banks have stopped lending.
New research from the Federal Reserve Bank of Richmond found that 19% of firms surveyed reported that access to financing or its cost had constrained investment or spending. Among smaller firms, roughly one in five reported financial constraints.
More than 60% of financially constrained firms said those constraints prevented them from pursuing new business opportunities.
At the same time, 80% of smaller firms did not identify credit costs as a constraint.
The financing environment has become more challenging for some businesses, particularly those with limited cash reserves, weaker credit or less flexibility in demonstrating their ability to repay.
The change is especially visible in Small Business Administration lending.
SBA 7(a) loan approvals nationwide were down 18% during the first half of 2026 compared with the same period last year, according to an analysis of SBA data by The Business Journals.
Specialty trade contractors, including HVAC companies, roofers and carpenters, saw an even larger decline.
California’s experience is more complicated. SBA loans to specialty contractors were down 17% year over year, but approvals remained more than 25% above California’s five-year average.
So California small businesses are not facing a complete disappearance of credit.
Instead, the data point to a more uneven lending environment.
What lenders are looking for
An SBA loan is not money that the government simply hands to a business.
With a 7(a) loan, a private lender makes the loan and the SBA provides a guarantee that can reduce some of the lender’s risk.
According to the U.S. Small Business Administration’s 7(a) program guidance, businesses must be creditworthy and demonstrate a reasonable ability to repay. The program can be used for working capital, equipment, real estate, refinancing business debt and other qualifying purposes.
That makes preparation important.
Before applying, a business owner should be ready to explain:
- How much money is needed
- Exactly what the money will be used for
- How the financing will support the business
- How the business will repay the loan
- Current revenue and cash flow
- Existing debt
- Business and personal credit history
- Recent tax returns and financial statements
For businesses seeking working capital, the SBA’s 7(a) Working Capital Pilot can also require financial statements and information on accounts receivable, accounts payable and inventory.
And because the SBA does not make 7(a) loans directly, applicants work with participating lenders. The SBA provides a Lender Match tool to help businesses find participating lenders.
Latino business owners face an additional financing challenge
Access to capital has been a documented issue for Latino entrepreneurs even before the latest changes in lending conditions.
Research from Stanford’s State of Latino Entrepreneurship program has found significant differences in access to funding between Latino and white entrepreneurs.
California-specific research also provides important context.
A 2025 report from UCLA’s Latino Policy & Politics Institute, based on a survey conducted in 2022 and 2023, found that 45% of surveyed Latina-owned businesses reported difficulty accessing capital. Among surveyed businesses facing capital-access challenges, 70% of Latina-owned firms cited insufficient funding and 48% cited low or poor credit as a barrier. The researchers caution that the sample was not statistically representative of all California businesses.
For additional Parriva context, see our previous explainer on how BMO is expanding lending access for Latino businesses in California.
Those findings are not a measurement of every Latino-owned business in California today. They do, however, show why changes in lending conditions can have particular consequences for entrepreneurs who already report difficulty accessing affordable capital.
Immigration status can now affect SBA eligibility
There is another change some California entrepreneurs need to understand.
The SBA announced in March 2026 that businesses owned in whole or in part by foreign nationals would no longer qualify for certain SBA-backed loan programs. Business owners should therefore verify current eligibility requirements directly with the SBA and their lender before assuming an SBA-backed loan is available to them.
That is especially relevant for entrepreneurs whose ownership structure or immigration status may affect eligibility.
It is also why business owners should not rely on older information about SBA loans.
What if an SBA loan isn’t the right fit?
An SBA loan is only one financing option.
Depending on the need and the business’s financial position, owners may also consider:
Bank loans or lines of credit: Often useful for established businesses with strong financial records and credit.
CDFIs: Community Development Financial Institutions can provide financing and technical assistance to businesses that may have difficulty obtaining conventional financing.
Microloans: These can be appropriate when the capital need is relatively small.
Equipment financing: Financing tied specifically to equipment can make more sense than using a general-purpose loan.
Business credit lines: A line of credit can provide access to money when cash-flow needs fluctuate.
Parriva has explored alternatives for California entrepreneurs, including TMC Community Capital’s small-business financing programs and ways entrepreneurs can raise money without relying entirely on traditional banks.
The important question is not simply:
“Where can I get money?”
It is:
“What type of financing fits my business, and what will it actually cost?”
Before you apply
A loan application should not be the first time a business owner looks closely at the company’s finances.
Before applying, review your credit, organize your financial statements, calculate existing debt obligations and determine how much the business can realistically afford to repay.
Have your tax returns, profit-and-loss statements, balance sheet, bank statements and other financial records organized.
Then compare lenders and financing products.
For California entrepreneurs, our small-business coverage and resources can also help you track financing, government programs and other changes affecting business owners.
The latest federal data do not show that small-business credit has disappeared. They show something more nuanced: financing pressures are affecting a minority of firms disproportionately, while lending conditions, borrowing costs and eligibility requirements are changing.
For California small-business owners, understanding those changes and preparing before applying can make the difference between simply seeking a loan and being ready to qualify for one.
