A foreign parent company and a US operating business

A US operating company with a foreign parent is a normal commercial structure and an awkward credit file. The trading entity is domestic, pays US tax, banks in dollars and has the cash flow. The people who own it, control it and would normally guarantee its debt are outside the reach of a US court. That single fact drives most of what follows.

Start with the guarantee, because it decides the rest

A US lender's standard security package on a small business loan is the business's assets plus the owners' personal guarantees. Where the owners are foreign individuals or a foreign company, the guarantee has two problems.

The workable answers, in order of how often they succeed:

1. A guarantee from a US-resident individual who controls the operating company. A general manager or minority owner with US assets. This is the cleanest solution and it is why many foreign parents grant a meaningful minority stake to their US operator.
2. Cash collateral or a standby letter of credit from a bank the US lender recognises. Expensive, and it ties up money, but it converts an unenforceable promise into a drawable instrument.
3. A guarantee from the parent, supported by a US-law governing clause, submission to US jurisdiction, and an appointed US agent for service of process. Ask your counsel whether the parent's home jurisdiction will recognise the resulting judgment. If the answer is uncertain, the lender's answer will be too.
4. Security over US assets only, with no guarantee, at a lower advance rate. Equipment financing and receivables facilities work best here because the collateral is domestic and the lender can reach it.

The intercompany balance, which moves your ratios more than you think

Foreign parents commonly fund the US subsidiary through an intercompany loan rather than equity. From the parent's perspective it is flexible and repatriable. From a US lender's perspective it is debt sitting ahead of them.

• Treated as debt: total debt 760,000 against equity 310,000 — debt to worth of 2.45.
• Subordinated to the lender and treated as equity for covenant purposes: debt 520,000 against 550,000 — debt to worth of 0.95.

Same company, same money, two very different files. If a bank covenant caps debt to worth at 2.0, the first version fails and the second passes comfortably.

The mechanism is a subordination agreement: the parent agrees its loan sits behind the bank's, and usually that no payments will be made on it while the bank's debt is outstanding or while a default subsists. Foreign parents often resist this because it traps cash in the subsidiary. That is exactly what the bank wants it to do.

Raise it early. Ask your lender for its standard subordination form at the term sheet stage and send it to the parent then, not in closing week, because it will need approval from people in another time zone who have never heard of your bank.

Beneficial ownership and the account-opening friction

Under 31 CFR 1010.230, a bank must identify each individual who "owns 25 percent or more of the equity interests of a legal entity customer" and "a single individual with significant responsibility to control, manage, or direct" it, at account opening, and must keep records of the information and verification.

Where the 25 percent owners sit behind a foreign holding structure, this is where timelines slip. Have ready, before you walk in:

• A full ownership chart from the US operating company up to the ultimate natural persons, with percentages at each level.
• Identification documents for each individual who meets the 25 percent threshold and for the control person.
• Formation documents for each intermediate entity, translated where required, with certified translations if the bank asks.
• The name of a US-based control person with authority to bind the company. Banks want someone they can telephone in business hours.

Expect this to take longer than you budget. Expect some banks to decline the relationship entirely on risk-appetite grounds without explaining why, which is their right and is not a comment on your business.

SBA eligibility, stated carefully

13 CFR 120.110 lists "businesses located in foreign countries" as ineligible, while noting that US-based businesses owned by aliens may qualify. The detailed ownership, citizenship and residency requirements are set by SBA policy and have been revised — SBA has published a procedural notice on revised applicant ownership, citizenship and residency requirements for 7(a) and 504 loans with an effective date of 1 March 2026. Do not rely on any summary, including this one, for the operative test. Ask your SBA lender to show you the current requirement in writing and to confirm your structure against it before you spend money on an application.

Transfer pricing, in one paragraph, because it affects cash flow

If the US company buys from, sells to, or pays fees to its parent, the prices set determine how much profit sits in the US entity — and that profit is what a US lender underwrites. A structure that pushes margin to the parent leaves a domestic entity that looks marginal on paper. Normalising this is difficult for an analyst because there is no external comparable, so they will often take the reported numbers at face value. That cuts against you. If the transfer pricing understates the US entity's economics, be ready to explain the policy, show the documentation, and accept that the lender may underwrite the reported figure anyway.

What to have ready and what to refuse

Have: the ownership chart, the intercompany agreement, the parent's most recent financial statements with an English summary, your US entity's returns and statements, and a named US control person.

Refuse to sign a facility whose covenants are measured on consolidated group figures you cannot control. And refuse to promise a parent guarantee before you have asked the parent's counsel whether their home jurisdiction would enforce it — a promise that cannot be delivered at closing costs you the deal and the fees.