SBA 7a Loans – Ineligible Businesses

An exhaustively researched guide to SBA 7a loans.


What businesses are ineligible for SBA 7a Loans?

Page 98 through 118 – yes that is 20 pages! – of the January 2018 SBA SOP 50 10 5(J) 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)” [amended Aug. 21, 2017].  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 prefer to dig deeper, we’ve included the page numbers where you will find the detailed exceptions to and clarification of each eligibility rule in the SOP 50 10 5 (J).

The following types of businesses are currently ineligible for SBA 7a Loans:

(a) Non-profit businesses (for-profit subsidiaries are eligible). See page 98 of the SOP.

(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). See pages 98-99 of the SOP.

(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). See pages 99-100 of the SOP.

(d) Life insurance companies. See pages 100-101 of the SOP.

(e) Businesses located in a foreign country or owned by undocumented aliens (businesses in the U.S. owned by aliens may qualify). See page 101 of the SOP.

(f) Pyramid sale distribution plans. See page 101 of the SOP.

(g) Businesses deriving more than one-third of gross annual revenue from legal gambling activities. See page 101 of the SOP.

(h) Businesses engaged in any illegal activity. See page 101 of the SOP.

(i) Private clubs and businesses which limit the number of memberships for reasons other than capacity. Aka, businesses which restrict patronage. See pages 101-102 of the SOP.

(j) Government-owned entities (except for businesses owned or controlled by a Native American tribe). See page 102 of the SOP.

(k) Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular
setting. See pages 102-103 of the SOP.

(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. See page 103 of the SOP.

(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). See pages 103 – 106 of the SOP.

(o) Businesses in which the Lender or CDC, or any of its Associates owns an
equity interest. See page 106 of the SOP.

(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. See pages 106-107 of the SOP.

(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. See pages 107-109 of the SOP.

(r) Businesses primarily engaged in political or lobbying activities. See page 109 of the SOP.

(s) Speculative businesses (such as oil wildcatting, spec home building, trading). See pages 109-110 of the SOP.

Other Eligibility Issues:

Rules about Small Business Lending Company (SBLC) eligibility – see page 110.

Rules about Businesses Owned by Non-U.S. Citizens – see pages 110-111.

Rules about Businesses owned by non-immigrant aliens residing in the U.S – see pages 111-114.

Rules about Passive Investment Companies – see pages 115-118.


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.  Contact Speritas Capital Partners about your eligibility for an SBA loan today.


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