Can an SBA loan fund another business I own?
Short answer
No. SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.9 bars any purpose that does not benefit the small business, including a loan to an applicant for the benefit of an affiliated business. 13 CFR 120.130(f) is the regulation.
No. Proceeds must benefit the business that borrows them. SOP 50 10 8.1 bars any purpose that does not benefit the small business (Sec. A, Ch. 3, Para. B.9). That includes a loan to an applicant for the benefit of an affiliated business. The regulation is 13 CFR 120.130(f).
A transfer to another company you own can hit a second rule. An entity in which a more-than-20% owner, officer, director or key employee owns or controls at least 20% is an Associate (13 CFR 120.10). Paragraph B.1 bars payments or loans to Associates.
How related companies can borrow together
- Real estate or equipment holding company. An Eligible Passive Company can own property and lease it to the operating company. When they are co-borrowers, part of a 7(a) loan may fund the operating company's working capital or other assets (Sec. A, Ch. 3, Para. A.2.d.ii; 13 CFR 120.111).
- Buying a sister business. In a Business Expansion under Appendix 15, an existing business buys 100% of another in the same four-digit NAICS Industry Group. If the acquired company stays separate, both must be co-borrowers (App. 15, Para. A).
Limits count together
SBA's loan maximums apply to the applicant and all affiliates as if they were one business (13 CFR 120.151; Sec. B, Ch. 1, Para. B.1).
Sources
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. B, Restrictions on Uses of Proceeds, Paras. B.1 and B.9 (p. 53)
- 13 CFR § 120.130
- 13 CFR § 120.10
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. A, Eligible Uses of Proceeds, Para. A.2.d.ii (p. 51)
- 13 CFR § 120.111
- SOP 50 10 8.1, App. 15, Para. A, Business Expansion (p. 362)
- 13 CFR § 120.151
- SOP 50 10 8.1, Sec. B, Ch. 1, Para. B.1, Maximum Loan Amount (p. 117)
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