What Minnesota’s federal funding freeze means for small business owners like you — and what to do next

Minnesota small business owners recently lost more than $5.5 million in federal funding after the U.S. Small Business Administration (SBA) pulled financial distributions to the state in late December 2025. 

Here’s what you need to know about this development and how it impacts you as a small business owner in Minnesota.

Why Minnesota lost federal funding

In a Dec. 23, 2025 letter directed to Minnesota Governor Tim Walz ,SBA Administrator Kelly Loeffler stated that she had halted distribution of $5.5 million due to alleged fraud tied to pandemic-era relief programs like the COVID-era Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) initiative. 

Loeffler’s letter specifically highlighted various Minnesota-based partner organizations impacted by the funding cut, including:

• Women’s business centers
• SCORE chapters that offer coaching and education
• Small business development centers 
• SBA microloan intermediaries

The $5.5 million loss is a relatively small sum in the grander scheme of federal funding, representing just 0.6% of Minnesota’s SBA financing in 2025. Minnesota entrepreneurs received more than $936 million in SBA-backed capital in fiscal year 2025, according to the Minnesota District Office, surpassing 2024 funds by nearly $90 million.

However, the pulled funds are part of a larger ongoing dispute between the federal government and the state of Minnesota, which also lost funding for dozens of other state programs including federally subsidized childcare and food-based needs.

As the political tension plays out, small business owners and other Minnesotans dependent on federal finances are looking to alternative resources for financial assistance. 

How lost federal funding impacts Minnesota small business owners 

This federal cut could represent a precedent of increased federal interference in state concerns. The initial loss of $5.5 million is small in context with 2025 funding but it’s possible that this may signal additional reductions in the future.

Every dollar matters when it comes to access to business funding. The support organizations impacted by the lost funding help Minnesota entrepreneurs apply for various types of federal funding, connect with lenders, and navigate eligibility requirements for SBA loans. 

A pause or decrease in funding results in lowered resources, which may lead to negative outcomes for small businesses due to slower response times for advising and application support, fewer workshops or one-on-one counseling appointments, and delays in loan disbursements. At the same time, SBA lenders may get more stringent on requirements for loan qualification, while approvals may take longer to clear with increased federal oversight.

Where small businesses can look for funding in the meantime 

If you lead one of the approximately 547,000 small businesses in Minnesota, chances are high that a decrease in federal funding can negatively impact your operations in some way. If you need to find financial support outside of federal funds, here are some options to consider:

• Community Development Financial Institutions (CDFIs): Minnesota boasts a robust network of community development financial institutions offering loans for small businesses, startups, and underserved communities. CDFIs often provide entrepreneurs with more flexible underwriting terms than those offered through traditional banks.
• State and local programs: Minnesota-based grants, loans, and technical assistance programs may be less affected by federal freezes and can serve as bridge funding. You can find these resources on the state’s Employment and Economic Development website.
• Traditional and online lenders: Banks, credit unions, and online lenders continue to operate independently of SBA resource-partner funding. While terms vary, business loans from private funding sources can help businesses move forward while federal reviews play out. 
• Business credit building: Even if you don’t need a loan today, business owners with strong business credit have more financial resources at their disposal for future use — especially if SBA programs resume at full capacity.  

While not a funding product, Nav Prime can help you understand and monitor your business credit profile — a key step when preparing to apply for financing.

The bottom line 

Minnesota’s federal funding hasn’t disappeared altogether — far from it, as of this current time. But small business resources may become slower, more scrutinized, and more political than in time past. 

In the short term, the best way for small business owners to stay afloat is to diversify your funding sources, advisors, and financing paths. In the meantime, ensure your business records stay extra clean to avoid any implications of fraud or misuse, and stay engaged with your local community and regional business organizations for support.