SBA 7a Loans – Ineligible Businesses

SBA 7a Loans – Ineligible Businesses

An exhaustively researched white paper & borrower guide to SBA 7a loans.


What businesses are ineligible for SBA 7a Loans?

Twenty pages of the 587 page October 2020 SBA SOP 50 10 6 lists ineligible businesses and the situations under which a normally ineligible business can become eligible for an SBA 7a loan.

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 (see 13 CFR § 120.110)” [last updated 11/8/2021 – and is continually updated at this link].  The list of ineligible businesses below is taken directly from the Code of Federal Regulation referenced above.

There’s a lot of information here, so Speritas Capital Partners welcomes your call or email and we’ll tell you if you’re eligible for an SBA loan.

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.

For even more updated eligibility rules, go directly to the latest updated 13 CFR.

A special release highlighting significant changes between the previous SOP and the current October 2020 SOP can be found here.

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).

Other Eligibility Issues:

Rules about Small Business Lending Company (SBLC) eligibility – see page 51-52.

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.


You can find additional eligibility information on our SBA 7a Credit Criteria page and on our SBA 7a Eligibility Explained page.


View our list of SBA White Paper Sources.

Contact Us

You need a strategic, cost effective solution to your financing needs and a funding partner you can trust. Let us put our decades of banking and structuring experience to work for you – with no upfront fees.  Email Speritas Capital Partners about your eligibility for an SBA 7(a) loan today.

 

Call/text Jeff Bardos, CEO
directly at 203-247-4358
Schedule a call

 


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