Have an SBA Loan? The SBA Just Rewrote the Nondiscrimination Rules That Come With It

The Small Business Administration published a final rule on Sept. 29 that removes two things from the civil rights regulations attached to its loans and grants: the idea that a borrower can be liable for unintended “disparate impact,” and the language that allowed or required race-conscious affirmative action ^[1]. It took effect the same day ^[1]. If your business has an SBA-backed loan, borrows through a development company, or holds an SBA grant, these are the nondiscrimination strings that came with the money.

Here’s the short version: the ban on intentional discrimination stays, the SBA says you don’t have to do anything differently, and a separate SBA deadline you may have marked for Sept. 21 has moved to Nov. 20 ^{[1, 4]}.

What the SBA changed

Title VI of the Civil Rights Act of 1964 bars discrimination on the ground of race, color or national origin in any program that receives federal financial assistance, and it tells each agency that hands out that assistance to write rules carrying it out ^[1]. The SBA’s version lives at 13 CFR part 112. Its definition of assistance covers grants and loans, property, personnel and contracts meant to provide assistance, and recipients sign a contractual assurance of compliance ^[1].

The rule makes four cuts ^[1]:

• Section 112.3(b)(3) is gone. It permitted “consideration of race, color, or national origin if the purpose and effect are to remove or overcome the consequences of practices or impediments” that had limited participation, and in some cases required recipients to act where past discrimination had excluded people ^[1].
• Section 112.7(d) is gone. It gave examples of that affirmative action ^[1].
• The third sentence of section 112.4 is gone. It reached a recipient’s employment practices even where providing jobs wasn’t a main purpose of the assistance, covering practices whose effect “tends” to exclude people ^[1].
• Section 112.7(a) is gone. It was an example applying the rule to recruiting, layoffs, promotions and transfers ^[1].

The SBA also fixed a cross-reference in section 112.4 that pointed to the wrong paragraph ^[1]. The practical upshot, in the SBA’s words: it “will not pursue Title VI disparate-impact liability against its Federal funding recipients” ^[1].

A quick translation of the jargon. “Disparate impact” means a neutral-looking policy that produces lopsided results across racial or ethnic groups, even when nobody intended it. “Intentional discrimination” means treating someone differently because of race, color or national origin on purpose.

How did we get here?

The SBA’s rule follows a chain of earlier federal steps. On April 23, 2025, Executive Order 14281 declared it federal policy “to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible” and told agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability” ^[3]. It directed the Attorney General to start repealing or amending every agency’s Title VI rules to the extent they contemplate that liability ^[3].

The Justice Department went first. Its final rule, effective Dec. 10, 2025, removed disparate-impact provisions and an affirmative action paragraph from its own Title VI regulations ^[2]. Justice coordinates Title VI enforcement across the government, and other agencies’ Title VI regulations are subject to the Attorney General’s approval ^[2]. The SBA says it agrees with Justice’s reasoning, says it would have acted even without the executive order, and notes that Justice reviewed and approved this rule ^[1].

The legal core of the SBA’s argument is a 2001 Supreme Court case, Alexander v. Sandoval, which the SBA reads as holding that Title VI itself bars only intentional discrimination ^[1]. The agency also leans on the Court’s 2023 admissions decision on race-conscious policies and its 2024 decision ending the Chevron doctrine of deference to agency interpretations ^[1].

What the SBA says it isn’t changing

This is where the rule gets more modest than its title. The SBA describes the world before the rule as one in which the removed provisions were “already effectively inoperative,” cited rarely and not enforced ^[1]. It estimates compliance costs as negligible and says the rule has no monetized benefits ^[1]. It writes: “There are no new compliance requirements, reporting obligations, or operational changes required of small businesses” ^[1].

What remains in section 112.4 is the core employment rule. Small businesses and development companies that apply for or receive the covered assistance, including businesses that benefit from SBA loans, “may not discriminate on the grounds of race, color, or national origin in their employment practices,” and that assistance is treated as having providing employment as a main purpose ^[1].

The SBA also says the numbers still matter. Eliminating disparate-impact liability “does not preclude the use of data on disparate outcomes to help prove intentional discrimination,” and both the SBA and private litigants rely on such data ^[1]. The agency says it weighed the view that looking at disparate effects can reveal subtle intentional discrimination and decided other concerns outweighed it ^[1].

One more boundary. The rule amends only part 112 ^[1]. It doesn’t touch Title VII, the separate federal law on employment discrimination, which the SBA mentions in explaining why Title VI should not “impinge” on it ^[1].

Does this apply to you?

If you have never borrowed through the SBA or taken an SBA grant, part 112 likely doesn’t reach you. If you have, here’s how it sorts out.

Take a hypothetical 20-person machine shop that took an SBA-backed loan to buy equipment. Before Sept. 29, the text of part 112 could, on paper, reach a hiring screen that unintentionally filtered out applicants of one national origin, and it encouraged steps to overcome past exclusion ^[1]. After Sept. 29, the SBA will not pursue that unintended-effect theory under Title VI ^[1]. But if the shop rejects applicants because of their national origin, that is still barred, and lopsided hiring numbers could still be evidence of intent ^[1].

Grant recipients may notice a smaller change. The SBA criticized past notices of funding opportunities that targeted racial groups, and pointed to a fiscal 2021 Community Navigator Pilot Program notice that measured results through crosscuts including race ^[1]. The agency says the rule should reduce the need for such race-based measurement ^[1].

What to do now

Nothing in this rule asks you to file a form or change a policy by a date ^[1]. The reasonable move is housekeeping: know what your assurance says, keep good records, and ask before assuming an old grant reporting term has disappeared. The checklist covers the details.

As we noted when the SBA stopped volunteering for public comment on loan and contract rules in August, its rules in these areas could start arriving without a proposal first. This one did: the SBA issued it with no comment period and no delayed effective date, using the exemption for rules about “loans, grants, benefits, or contracts” ^[1]. Because no comment was required, the SBA also skipped the small-business impact analysis under the Regulatory Flexibility Act ^[1].

What I’m keeping an eye on

The size standards comment deadline, now Nov. 20, 2026. The SBA proposed measuring most businesses by headcount in August, with comments first due Sept. 21. A notice published Sept. 24 extends comments on both the proposal and the revised methodology by 60 days, citing “requests for additional time to comment” and “the SBA’s clarification of the impacts” of its proposed changes ^[4].

The report to Congress. The SBA says it will send this rule to the House, Senate and Comptroller General under the Congressional Review Act; the White House regulatory office found it is not a major rule ^[1].

— Sally