The US Small Business Administration (SBA) recently provided additional guidance to the smaller lenders in its network on how to comply with its prior directive on eliminating “politicized or unlawful debanking” activities. The initial letter to lenders came in response to a Trump administration executive order (EO) that directs the SBA and other “Federal banking regulators”[1] to identify and remediate past instances and prevent against future acts of debanking.
Following calls from industry for clarification on how to comply with the SBA’s directives, the SBA issued further guidance – but only applicable to its smaller lenders. Larger lenders are still left with additional questions regarding their compliance obligations under the EO.
Initial letter to SBA-backed lenders
As required by the EO, on August 26, the SBA initially sent letters to all participants in its loan guarantee programs of certain obligations the lenders must carry out. By December 5, 2025, SBA-backed lenders must:
- Identify past or current policies or practices that require, encourage or influence the lender to engage in politicized or unlawful debanking.
- Make reasonable efforts to identify, reinstate and provide notice to any previous clients of the lender or its subsidiaries denied service through a politicized or unlawful debanking action.
- Identify potential clients denied access to the lender’s financial services or payment processing services due to politicized or unlawful debanking and provide notice of the denied access and the renewed option to engage in the services.
While the SBA’s letter set forth this series of requirements, it provided few details about what is expected of lenders in conducting and reporting back on these reviews.
Supplemental guidance
On September 30, the SBA issued additional guidance – but only applicable to institutions with less than $30 billion in total assets as of June 30, 2025, and that are supervised by one of the Federal banking regulators.
A smaller lender can demonstrate compliance by submitting a model reporting form[2] certifying that it has conducted a “reasonable review” to identify debanking policies in the organization in the past five years. A “reasonable review” refers to “efforts and reviews conducted by the institution in good faith, accounting for the institution’s size, complexity, and risk profile.” The letter further clarifies that an institution should review “readily available, existing records kept in the ordinary course of its business, and it should rely solely on existing staffing and systems without incurring any undue cost or burden.”
Specifically, smaller institutions must review their policies and practices from the past five years to determine if the institution has:
- Received any notice from a state or federal banking agency identifying alleged instances of politicized or unlawful debanking.
- Received a report, including in a quarterly or other management information session report, that included allegations the institution engaged in politicized or unlawful debanking.
- Had any formal or informal policies or practices that required, encouraged or otherwise influenced the institution to engage in politicized or unlawful debanking.
If any such policy is found, the institution must identify any previous or potential clients who were denied services as the result of a politicized or unlawful debanking action, reporting the number of such instances and summarizing them “with sufficient detail to allow for follow-up by the SBA.” Any efforts to redress previous debanking instances must also be summarized and reported.
Looking ahead
Though this recent letter focuses on smaller lending institutions, lenders of all sizes should use it as helpful guidance when compiling information to comply with the SBA’s reporting requirements, such as the five-year look-back period. Any further guidance from the SBA for lenders of other sizes may be affected by the federal government shutdown, which took effect on October 1.
[1] “Federal banking regulators” refers to “the Small Business Administration (SBA) and the Federal member agencies of the Financial Stability Oversight Council with supervisory and regulatory authority over banks, savings associations, or credit unions.”
[2] The SBA notes that the model reporting form should not be considered a “formal attestation.”