SBA 7(a) Loans: Allowed Uses of SBA Loan Proceeds
SBA 7a Loans White Paper: An Exhaustively Researched Guide for Borrowers Using Primary US Government Sources
By Jeff Bardos, CEO, Speritas Capital
January 4, 2021 – Greenwich, Connecticut
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Allowed Uses of SBA Loan Proceeds & Borrower Requirements
How the proceeds of an SBA 7a loan can be used is generally clear cut and well-documented by the SBA.
Borrowers may use 7a loans to establish a new business or to assist in the operation, acquisition, or expansion of an existing business.
The following list is taken directly from the Congressional Research Service Report R41146 by Robert Jay Dilger on the SBA 7a Loan Guaranty Program, updated February 25, 2021.
Text in italics is provided by Jeff Bardos, CEO of Speritas Capital Partners, for clarification.
For example, ‘fixed assets’ is a wide category. Knowing what asset purchases are included as “an approved use” of SBA funds can get muddy.
According to the Congressional Research Service Report R41146, 7a loan proceeds can be used to:
Acquire or start an eligible business
Acquire land (by purchase or lease)
Buyout a partner
Improve a site (e.g., grading, streets, parking lots, landscaping), including up to 5% for community improvements such as curbs and sidewalks
Purchase one or more existing buildings
Convert, expand, or renovate one or more existing buildings
Construct one or more new buildings
Acquire fixed assets including furniture and fixtures and machinery & equipment
Purchase inventory, supplies, and raw materials
Finance working capital including permanent and revolving working capital
Refinance certain outstanding debts including an outstanding SBA loan under certain conditions. Refinancing must improve cash flow.
Borrowers are Prohibited from using 7(a) Loan Proceeds to:
Refinance debt where the lender would sustain a loss and SBA would absorb that loss.
Finance partial changes of ownership that do not benefit the business. Partial transfers are permitted is they clearly benefit the business.
Reimburse funds owed to owners, including equity injections or capital contributions.
Repay delinquent state or federal withholding taxes or other escrow-type obligations.
Fund speculative investments, passive real estate, or businesses ineligible under SBA rules.
Foreign ownership restrictions were tightened in 2025: Only U.S. citizens, nationals, naturalized citizens, and lawful permanent residents qualify for SBA loans. Lenders must certify that no direct or indirect owner is an ineligible person (e.g., foreign nationals without permanent residency, undocumented people).
Pay off merchant cash advances. 7(a) proceeds cannot be used to refinance ineligible debt instruments (such as MCAs) unless they meet strict criteria.
Refinance same‑institution debt.
Questions about SBA 7a loans? Schedule a call with the author Jeff Bardos now.
What can’t an SBA 7a Loan be used for?
Cannot be used for businesses that are illegal at the Federal level
Cannot be used for banks or lenders, or activities like gambling or pornography
Cannot be used to make passive real estate investments
Cannot be used to pay delinquent taxes
For more information see our SBA 7a Ineligible Businesses page.
For what Types of Businesses and Situations can an SBA 7a Loan be Difficult to Get?
Pure startups without collateral. For example, start ups in B2C, software and retail service companies.
Roll-ups where the owners aren’t experienced or some partners are unwilling to make a personal guarantee.
The buyer of a business is relying entirely on a seller note to meet the SBA equity requirement.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your financing questions
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Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.
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