Federal policy shifts are reshaping access to capital and contracts for Latino- and minority-owned businesses

Access to capital and contracts shapes how small businesses grow, manage cash flow, and build long-term economic footing. Credit helps firms cover payroll, invest in equipment, and bridge revenue gaps, while public contracts can provide predictable demand and pathways to scale and wealth. To support these functions, the federal government administers a range of lending, procurement, and business development programs across multiple agencies.

For Latino-owned businesses and firms owned by entrepreneurs of color, these levers have long been challenging to reach. Minority-owned firms are more likely to report credit constraints, receive smaller loan amounts, and face higher borrowing costs. Participation in public contracting has also been shaped by administrative complexity and certification hurdles. At the same time, federal procurement remains one of the largest sources of contract opportunities available to Latino-owned firms, accounting for roughly $10 billion in awards annually during the previous administration and representing a meaningful pathway for business growth and wealth creation. Yet disparities in participation suggest that this pathway remains underutilized, representing both an access challenge and an unrealized economic opportunity.

This report is part of a broader series examining how federal policy volatility is reshaping the business environment for Latino entrepreneurs across regions and sectors. While informed by their experiences, the developments described here affect small businesses more broadly. However, because Latino- and other minority-owned firms have historically faced greater barriers to credit and contracting, changes in these systems carry disproportionate consequences and, in some cases, directly target underrepresented business owners by reframing how federal agencies evaluate and support them.

The existence of ethnicity- and race-based disparities hasn’t changed, but a new level of instability has been layered on top of them. Rapid changes in enforcement, administrative structure, and eligibility standards are altering federal lending rules, procurement practices, and support infrastructure all at once (see Table 1). As these adjustments converge, pathways to participation become more complex and less predictable. The result is not simply disruptive—it’s creating new barriers to reliably accessing capital, competing for contracts, and building durable businesses, all of which are hurting small and minority-owned businesses most.

Federal lending rules are tightening

Narrow eligibility standards, stricter underwriting requirements, reduced lender discretion, and administrative strain in mission-driven capital programs are collectively reshaping how small businesses access federal credit. While recent federal rhetoric has emphasized efficiency and removal of regulatory “red tape,” several components of the small business financing framework have become more documentation-intensive and centralized.

A small business typically relies on a mix of financing sources over its lifespan, including personal savings, bank loans, credit cards, government guarantees, mission-driven lenders, and state or local capital programs. This layered structure allows firms to manage cash flow, invest in growth, and absorb shocks. As multiple components of the federal system tighten at the same time, firms have fewer alternative financing options and less flexibility to manage cash flow or respond to unexpected expenses.

These dynamics are especially consequential for firms owned by Latinos and other entrepreneurs of color. Long-standing disparities in credit access mean these firms are more likely to report difficulty obtaining full financing or transparency regarding funding decisions. In response, many rely on online nonbank lenders, whose borrowing costs are often higher. Patterns such as these are closely linked to broader wealth gaps. Because loan capital is typically supported by personal equity, collateral, or financing backing from family and social networks, unequal access to asset accumulation translates into unequal access to affordable finance.

These structural disparities form the backdrop against which recent federal policy changes are unfolding. Over the past year, several components of the federal small business financing framework have been modified, including the Small Business Administration’s (SBA) 7(a) loan program—the government’s primary vehicle for delivering government-guaranteed credit to small businesses. The program supports qualifying firms by guaranteeing a portion of loans made by participating lenders, which reduces lender risk.

New guidance for the 7(a) and 504 loan programs requires that businesses be entirely owned by U.S. citizens or nationals to qualify for federally guaranteed credit, removing eligibility for Legal Permanent Residents, otherwise known as “green card holders.” The rule applies to any ownership stake, meaning even limited equity held by a noncitizen disqualifies the firm. While legal permanent residents may still own businesses and pursue conventional financing, the change removes access to one of the federal government’s primary small business credit backstops.

Beyond eligibility changes, updated SBA guidance has modified underwriting standards for 7(a) loans. The maximum loan amount eligible for streamlined underwriting has been reduced from $500,000 to $350,000, meaning borrowers seeking loans between $350,000 and $500,000—who previously qualified for simplified review—must now undergo the standard 7(a) underwriting process. The minimum prescreen business credit score for certain 7(a) loans has been raised from 155 to 165. The prior “Do What You Do” approach, which allowed lenders to apply their own underwriting standards, has been eliminated in favor of more centralized SBA criteria. Startup businesses are again required to contribute minimum equity injections, and lenders must more fully evaluate whether credit is available from borrowers’ personal assets before approving a guarantee.

Collectively, these changes reduce lender discretion and increase the percentage of loan applicants subject to full underwriting requirements. Borrowers with limited credit history, thinner margins, or fewer personal assets may face higher documentation demands and more detailed review. Even those who ultimately qualify may experience longer processing timelines and higher transaction costs.

SBA data show that prior to these changes, participation in 7(a) lending was already unequal across borrower groups. In Fiscal Year 2024, Latino-owned businesses accounted for 12.5% of approved 7(a) loans, but only 8.3% of total approved dollars, compared to 45.7% and 39.4%, respectively, for white-owned firms (see Table 2). While these figures do not capture application volume or denial rates, they indicate that SBA-backed capital was distributed unevenly even before the current policy shifts. Underwriting modifications therefore occur within a financing landscape already marked by disparities in participation and capital flows.

Beyond eligibility rules and credit standards, the operational continuity of federal capital programs also shapes how quickly and reliably credit reaches small businesses. Developments surrounding the Treasury Department’s Community Development Financial Institutions (CDFI) Fund illustrate this broader dynamic.

The CDFI Fund supports mission-driven lenders serving borrowers that conventional markets often overlook, including firms in rural, Tribal, and underserved communities. In FY 2024, the Fund awarded more than $400 million in grants and loans to CDFIs nationwide, and Congress appropriated $324 million for the program in FY 2025 and FY 2026. CDFIs collectively manage hundreds of billions of dollars in assets and provide financing to millions of small businesses, homeowners, and community facilities.

In recent months, however, the program has faced multiple sources of uncertainty: delays in the release of previously appropriated funds, disruptions tied to partial government shutdowns, and reported efforts to significantly reduce or eliminate CDFI Fund staffing—actions that have been subject to legal challenges. Although appropriations remain in place, delays in disbursement and administrative strain are affecting how quickly capital can be deployed and how reliably certification, technical assistance grants, and allocation agreements can move forward.

CDFI programs operate on multiyear funding cycles and depend on federal certification, grant agreements, and allocation approvals before capital reaches lenders and borrowers. For many institutions, federal designation also serves as a signal that helps attract private and philanthropic investment, leveraging additional capital beyond federal dollars alone. When administrative processes slow or staffing capacity is reduced, lending timelines can extend and capital formation may weaken, even if headline appropriations remain unchanged.

These dynamics are especially consequential for Latino-owned businesses and other minority-owned firms, which are more likely to report difficulty accessing conventional bank credit and to seek financing from mission-driven or nontraditional lenders. In communities where CDFIs play a significant role in small business lending (particularly in rural, Tribal, and underserved areas), administrative disruptions at the federal level can slow loan approvals, constrain working capital, and affect the pace of business formation.

Together, these developments narrow pathways into government-backed credit and increase the administrative demands placed on borrowers and lenders alike. Because they unfold within a financing system already marked by disparities in access and capital distribution, their effects are unlikely to be evenly felt.

Federal procurement is becoming more concentrated and harder to access for small and minority-owned businesses

A series of policy and administrative changes are reshaping federal procurement. Shifting eligibility standards, intensified compliance requirements, expanded audit activity, and contract pipeline volatility are collectively changing how firms access public contracting opportunities. Taken together, these developments make procurement participation more administratively burdensome and less predictable—weakening one of the federal government’s most important pathways for small firms to grow, stabilize revenue, and build wealth.

Federal procurement is one of the primary ways the federal government engages private firms to deliver goods and services. Through statutory small business goals and programs such as 8(a), HUBZone, and Women-Owned Small Business set-asides, Congress has created streamlined methods with which agencies can award a portion of contract dollars to smaller firms and thereby broaden market participation, strengthen competition, and spur American innovation across industries.

The rules governing how federal agencies purchase goods and services are set primarily through the Federal Acquisition Regulation (FAR), a government-wide rulebook that establishes how contracts are competed, awarded, and administered. The FAR is developed and updated by the Federal Acquisition Regulatory Council, which includes representatives from the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP), the General Services Administration (GSA), the Department of Defense, and NASA. Because these rules shape how contracting officers structure competitions and determine eligibility, changes to procurement policy can significantly influence which firms are able to compete for federal work.

These regulatory changes are unfolding alongside a broader shift in procurement policy initiated through a series of executive orders issued in the early months of the current administration. Several of these orders direct agencies to restructure how the federal government purchases goods and services. Executive Order 14275, “Restoring Common Sense to Federal Procurement,” calls for a sweeping rewrite of the Federal Acquisition Regulation to remove non-statutory provisions and streamline procurement rules. Other orders emphasize consolidating procurement functions under the GSA, prioritizing the purchase of commercially available products and services, and encouraging greater use of expedited acquisition pathways within defense procurement. Taken together, these directives signal a shift in how the federal government structures contracting markets—one that may increasingly favor large, incumbent contractors already embedded in government procurement systems over smaller and newer entrants.

In practice, much of the federal government’s procurement occurs through large, pre-approved contracting vehicles created under a system known as “category management.” Rather than running fully open competitions for every purchase, agencies often buy goods and services through Governmentwide Acquisition Contracts (GWACs), Multiple Award Contracts (MACs), or Indefinite Delivery/Infinite Quantity (IDIQ) contracts administered by agencies such as the GSA. These vehicles establish pools of pre-approved vendors that agencies can draw from when issuing task orders. While this structure can streamline purchasing and reduce the administrative burden for agencies, it can also restrict certain opportunities to firms that have secured access to these contract vehicles, which often remain closed to new entrants for several years.

Changes to federal procurement rules are occurring within this existing framework. Recent revisions to FAR Part 19, which governs small business contracting policy, illustrate how procurement priorities are evolving. The revisions retain the long-standing “Rule of Two,” which generally requires agencies to set aside contracts for small businesses when at least two qualified firms can be expected to compete at a fair price. However, the FAR Council also withdrew a proposed Biden-era rule that would have expanded the application of the Rule of Two to orders issued under certain MACs. Because a growing share of federal procurement now occurs within these vehicles, limiting the rule’s reach reduces the number of situations in which small businesses set-asides are required in practice.

At the same time, updated regulatory language shifts the treatment of several targeted small business programs—including the 8(a), HUBZone, Women-Owned Small Business, and Service-Disabled Veteran-Owned Small Business programs—from mandatory tools to discretionary options for contracting officers.

In practical terms, these changes alter how opportunities get distributed within the federal contracting marketplace. When contracting officers have greater discretion to bypass targeted small business programs or when set-aside requirements apply in fewer situations, smaller firms may face greater competition from larger incumbents already embedded in government contracting vehicles. Because many small firms rely on federal contracts to stabilize revenue, hire workers, and invest in equipment or expansion, even incremental changes to how contracts are structured or awarded can reshape the pipeline of opportunities available to them.

These policy shifts are unfolding within a federal contracting marketplace that already exhibits persistent disparities in participation. SBA procurement data from FY 2024 show that entrepreneurs of color account for a smaller share of federal contracting dollars than white-owned firms (see Table 3). Although small and disadvantaged business programs are intended to and can be further designed to broaden access, disparities in contract awards persist. As with credit markets, imbalanced representation in public procurement shapes how shifts in contracting policy affect different firms.

Recent developments have markedly altered the operation of the SBA’s 8(a) Business Development program, which supports small businesses owned and controlled by socially and economically disadvantaged individuals. The program provides business development assistance, technical support, and access to sole-source and competitive set-aside federal contracting opportunities.

Against this backdrop of persistent disparities in federal contracting, one of SBA’s day-one priorities was to reduce the Small Disadvantaged Business (SDB) contracting goal from previously elevated levels back to the statutory minimum of 5%. The prior administration had set a government-wide goal of 15% for SDB awards by 2025, and reached over 12% in FY 2023, the highest in history. While the statutory framework remains intact, contracting goals shape agency planning and award decisions. Changes in target levels may influence the scale and prioritization of awards within the 8(a) and broader SDB categories.

Changes to contracting goals represent one dimension of how procurement policy is implemented. A separate but related shift has occurred in how eligibility for disadvantaged business programs is defined and administered. Following a 2023 federal court ruling that invalidated race-based presumptions of social disadvantage, SBA was mandated to shift—under the prior administration—to a race-neutral, individualized assessment framework requiring applicants to submit detailed narratives documenting specific instances of social disadvantage. Because presumptive eligibility was no longer permitted, thousands of applicants and existing participants were required to prepare “fact-specific,” individualized narratives documenting concrete instances of disadvantage—along with supporting materials—to demonstrate that such disadvantage had materially affected their educational, employment, or business advancement.

Subsequent guidance issued in January 2026 went beyond the earlier court-mandated removal of race-based presumptions by formally narrowing how “social and economic disadvantage” is interpreted and applied. While the prior administration shifted to an individualized, race-neutral form of review in response to the 2023 court ruling, SBA’s 2026 guidance redefined the evaluative standard itself. The agency eliminated reliance on prior narrative frameworks and withdrew earlier public guidance documents, signaling a substantive redesign rather than incremental clarification.

Staff members were directed to apply a more constrained, fact-specific inquiry requiring documented, demonstrable harm, and to explicitly consider whether an individual has been adversely affected by diversity, equity, and inclusion (DEI) or affirmative action policies. This reframing shifts the program’s emphasis away from addressing patterns of structural exclusion and toward centering individualized claims of harm across a broad range of experiences. In effect, the revised standard broadens eligibility beyond historically underrepresented racial groups by emphasizing alleged adverse impacts of DEI-related policies as a qualifying disadvantage (which may in effect advantage some white applicants), while raising evidentiary hurdles for those whose disadvantage reflects historically patterned racial exclusion. This shift carries particular significance because the 8(a) program was originally championed by former Rep. Parren Mitchell (D-Md.) in the aftermath of the Civil Rights Movement as a tool to expand economic opportunity for minority-owned businesses historically excluded from federal contracting markets. Notably, this redesign occurs in a federal contracting landscape where minority-owned firms already receive a disproportionately small share of federal contract dollars, intensifying questions about how program participation may evolve.  

This shift coincided with a sharp contraction in program admissions. SBA reported that only 65 new firms were admitted to the 8(a) program in 2025, compared to more than 2,100 admitted during the previous administration. At the same time, in June 2025, SBA launched its first comprehensive audit of the program in decades, and in December 2025, it required more than 4,300 participants to submit detailed financial and contract documentation. In January 2026, SBA suspended more than 1,000 firms for failure to comply with documentation requests, including some firms that reportedly submitted materials shortly after the deadline or encountered technical issues with the certification portal. Because suspended firms are barred from receiving new 8(a) awards while appeals are pending, even procedural noncompliance such as this can temporarily disrupt access to contracting opportunities.

Changes in contracting oversight extended beyond SBA. In November 2025, the U.S. Treasury announced audits of contracts and task orders awarded under SBA’s 8(a) program, and the Department of Defense—which has almost 10 times the 8(a) contracting spend of any other agency—has directed a review of all its sole-source and set-aside awards above $20 million in value (including 8(a) contracts), with the goal of assessing their compliance, subcontracting limitations, and alignment with departmental priorities. Separate from these administrative actions, members of Congress have introduced legislation proposing additional restrictions on sole-source 8(a) awards.

A similar shift is underway in the Department of Transportation’s (DOT) Disadvantaged Business Enterprise (DBE) program. An interim final rule issued in October 2025 eliminated race- and sex-based presumptions of disadvantage, and required all certified firms to undergo individualized reevaluation without reliance on group-based criteria. Tens of thousands of firms nationally have been affected. Although DBE participation goals are established at the federal level, certification is administered by state-level Unified Certification Programs (UCPs), which determine firm eligibility within their jurisdictions. As UCPs reassess existing firms, several state DOTs have paused the application of DBE goals on new contracts pending recertification. During this period, firms may temporarily lose eligibility for goal credit, affecting bid competitiveness and revenue projections. These developments are particularly consequential in industries such as construction, transportation, and infrastructure contracting—sectors in which Latino-owned firms are significantly represented and DBE participation often shapes subcontracting opportunities. Because certification is administered at the state level, implementation may vary across jurisdictions, potentially reinforcing regional differences in how small and minority-owned firms experience federal policy shifts.

Cross-agency contract reviews and cancellations associated with Department of Government Efficiency (DOGE) initiatives have added another layer of instability to federal contracting pipelines during this administration. A 2025 analysis of federal spending data found that contracts DOGE cut were disproportionately held by small, minority-, and women-owned businesses relative to their overall share of federal contracting dollars. For firms that depend heavily on public sector revenue, pauses or cancellations in contract pipelines affect hiring plans, subcontracting relationships, and capital investments. Prime contractors facing uncertainty may also adjust subcontracting strategies, shaping downstream opportunities for smaller firms.

Across agencies, procurement policy is becoming more burdensome. In a contracting environment in which minority-owned firms already receive a disproportionately small share of federal dollars, these shifts may further change who is able to participate, compete, and scale through public contracts.

Small business support systems are shrinking

As capital access and procurement systems become more administratively complex, participation depends increasingly on business support services. Federal small business policy operates not only through lending and contracting programs, but also through agencies and intermediaries that provide technical assistance, navigation, certification support, compliance assistance, and capital readiness services. These functions help translate formal eligibility into practical access, particularly for entrepreneurs without in-house legal, accounting, or compliance capacity. When this support ecosystem weakens, barriers to entry can rise.

Recent staffing reductions and operational disruption within key small business support agencies have reduced local access to hands-on navigation and compliance assistance. The Minority Business Development Agency (MBDA)—dedicated to supporting minority-owned businesses with technical assistance and a nationwide network of Business Centers—has been effectively dismantled operationally, with reporting indicating a sharp staffing decline and the halting or termination of federally funded center work. This represents a significant loss of institutional capacity, not merely a policy shift; MBDA’s network previously helped firms access substantial capital and contracts and supported job creation and retention, including through newer capital-readiness efforts. A Small Business Majority poll found that among minority- and women-owned small businesses that received publicly funded support, roughly 1 in 4 had received assistance from the MBDA, underscoring the agency’s role within the broader small business support ecosystem.

SBA has also undergone a major reorganization and workforce contraction. In March 2025, the agency announced plans to reduce its workforce by 43%. During this period, SBA relocated six regional offices (Atlanta, Boston, Chicago, Denver, New York, and Seattle), altering established local points of contact and in-person service. Even where programs remain authorized, staffing reductions and field office transitions can affect response times, technical troubleshooting, and the availability of hands-on assistance—supports that are particularly important for firms without in-house legal, accounting, or contracting compliance capacity.

The effects of this are indirect but often consequential. As technical assistance declines and administrative processes become more complex, the time and cost required to access loans and contracts increase. Fewer firms successfully navigate applications and certification requirements, and reliance on private consultants grows. Firms with internal administrative capacity can absorb these demands more easily, while smaller businesses face higher barriers to entry. Over time, reduced technical infrastructure reshapes participation itself—shifting federal program entry to favor firms with greater scale and compliance resources even more.

Conclusion

The systems that support small business formation and growth have suffered from disparities long before the current period of policy volatility. Credit gaps were large, contracting pathways were complex, and access to technical infrastructure varied widely across communities. At the same time, the United States has historically maintained one of the most robust public systems in the world for supporting small business development—from the creation of the Small Business Administration in the 1950s to the passage of policies designed to ensure small firms can compete for government contracts and obtain the capital needed to grow. Over decades, this framework has helped spur innovation, entrepreneurship, and local economic growth. The current wave of policy changes raises questions about whether elements of that long-standing infrastructure are being weakened in ways that may shift opportunity toward larger incumbent firms.

These recent shifts did not create the disparities that currently exist in access and opportunity, but they are interacting with them in ways that are likely to deepen them. Narrower lending eligibility, procurement reprioritization, administrative strain, workforce reductions, and evolving eligibility standards compound preexisting constraints. Congressional appropriations decisions and state-level program redesigns will further determine whether small business support capacity deepens or erodes. When multiple pathways of support tighten at once, firms operating with thinner margins and fewer buffers feel the effects first. Over time, the cumulative result is a tilt in competitive advantage toward firms with greater scale, capital, and compliance capacity.

The cumulative effect of this is not simply instability, but a more interventionist and documentation-intensive federal approach to capital access and procurement that reshapes who can realistically participate in these programs.

For Latino-owned and other minority-owned businesses as well as the organizations that support them, tracking these intersecting shifts is essential. But diagnosis alone is not sufficient. The final report in this series on Latino entrepreneurship will synthesize lessons from federal policy volatility, state-level variation, financial access constraints, procurement dynamics, and institutional capacity changes to outline a forward-looking framework for small business policy. If the status quo was already falling short and recent volatility has exposed its fragility and potential for further inequality, the task is not to restore what existed before, but to build a more stable, competitive, and inclusive foundation for small business growth in America.