SBA 7(a) Loans: Ineligible Businesses
The SBA 7a Loan White Paper: An Exhaustively Researched Guide to 7a Loans for Borrowers Based on Primary US Government Sources
What Businesses are Ineligible for SBA 7a Loans?
By Jeff Bardos, CEO, Speritas Capital
January 4, 2021 – Greenwich, Connecticut
Call or text 203-247-4358
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We hope you like to read! Twenty pages of the SBA’s 587 page Standard Operating Procedure Document - SOP 50 10 6 (updated for October, 2020) lists ineligible businesses and the situations under which a normally ineligible business can become eligible for an SBA 7a loan.
We’ve summarized the main components of the rules below. Text in ITALICS is provided for clarification by Jeff Bardos, CEO, Speritas Capital Partners.
If you feel that you are in a gray area, give us a call and we can quickly let you know if you are eligible or not. This is a conversation we’ve had hundreds of times!
Who Determines Eligibility for an SBA 7a Loan?
According to the SBA, “The Lender must determine whether the Applicant is one of the types of businesses listed as ineligible in SBA regulations.”
The summary list of ineligible businesses below is taken directly from the Code of Federal Regulation - Title 13 CFR § 120.110 .
There’s a lot of information here, so Speritas Capital Partners welcomes your call or email and we’ll review your eligibility based on your situation.
If you’d like to dig deeper, you’ll find the detailed exceptions to and clarification of each eligibility rule in the 2020 SOP 50 10 6 on pages 141-157.
There’s also a special release with highlights of the significant changes between the previous SBA SOP and the current October 2020 SOP.
To view the full list of primary sources used in this White Paper, visit our SBA 7a Loan White Paper Homepage, and scroll to the ‘sources’ section.
According to the Code of Federal Regulations, the following types of businesses are currently ineligible for SBA 7a Loans:
(a) Non-profit businesses (for-profit subsidiaries are eligible).
(b) Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors (pawn shops, although engaged in lending, may qualify in some circumstances).
(c) Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies under §120.111).
(d) Life insurance companies.
(e) Businesses located in a foreign country or owned by undocumented aliens (businesses in the U.S. owned by aliens may qualify).
(f) Pyramid sale distribution plans.
(g) Businesses deriving more than one-third of gross annual revenue from legal gambling activities.
(h) Businesses engaged in any illegal activity.
(i) Private clubs and businesses which limit the number of memberships for reasons other than capacity. Aka, businesses which restrict patronage.
(j) Government-owned entities (except for businesses owned or controlled by a Native American tribe).
(k) Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting.
(l) Reserved – Used to read ‘Consumer and marketing cooperatives (producer cooperatives are eligible’).
(m) Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans.
(n) Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude. (AKA, poor character).
(o) Businesses in which the Lender or CDC, or any of its Associates owns an equity interest.
(p) Businesses which: (1) Present live performances of a prurient sexual nature; or (2) Derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature.
(q) Prior loss to the government and delinquent Federal debt. Unless waived by SBA for good cause, businesses that have previously defaulted on a Federal loan or Federally assisted financing, resulting in the Federal government or any of its agencies or Departments sustaining a loss in any of its programs, and businesses owned or controlled by an applicant or any of its Associates which previously owned, operated, or controlled a business which defaulted on a Federal loan (or guaranteed a loan which was defaulted) and caused the Federal government or any of its agencies or Departments to sustain a loss in any of its programs. For purposes of this section, a compromise agreement shall also be considered a loss.
(r) Businesses primarily engaged in political or lobbying activities.
(s) Speculative businesses (such as oil wildcatting, spec home building, trading).
Questions about SBA 7a Loan Eligibility? Schedule a call with the author, email, or call/text 203-247-4358.
Special Eligibility Situations
There are always exceptions to every rule…
Rules about Small Business Lending Company (SBLC) eligibility – see page 51-52 of the 2020 SOP.
Rules about Businesses Owned by Non-U.S. Citizens – updated in 2020.
Rules about Businesses owned by non-immigrant aliens residing in the U.S.
Rules about Passive Investment Companies.
Special Considerations for Veterans - CFR Title 13, Chapter 1 - § 120.105
Other 7a Eligibility Requirements…
You can find additional detailed eligibility information on our SBA 7a Credit Criteria page and on our SBA 7a Eligibility Explained page.
Want to go to the source? View our SBA White Paper Sources List (with links), on our White Paper homepage.
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
Schedule a call with Jeff using our online scheduling tool.
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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