SBA 7a Loan Proceeds – Allowed Uses

An exhaustively researched guide to SBA 7a loans.


Borrower Program Requirements
Allowed Use of SBA 7a Loan Proceeds

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 October 31, 2018.

Text in italics is provided by Jeff Bardos, CEO of Speritas Capital Partners for clarification.

7a loan proceeds may be used to:

  • Acquire land (by purchase or lease);
  • 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 (by purchase or lease) and install 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

Borrowers are prohibited from using 7(a) loan proceeds to:

  • refinance existing debt where the lender is in a position to sustain a loss and the SBA would take over that loss through refinancing
  • effect a partial change of business ownership or a change that will not benefit the business
  • permit the reimbursement of funds owed to any owner, including any equity
    injection or injection of capital for the business’s continuance until the loan
    supported by the SBA is disbursed
  • repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
  • pay for a non-sound business purpose.

What can’t an SBA 7a Loan be used for?

  • Cannot be used for businesses that are illegal
  • Cannot be used for banks or lenders, or activities like gambling or pornography
  • Cannot be used to pay delinquent taxes

For more information see our SBA Ineligible Businesses page.

In what situations can an SBA 7a loan be difficult to get?

Pure startups without collateral. e.g. software or services companies.


View our SBA White Paper Sources List.


 

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