What an SBA loan can pay for: questions and answers

All 22 answers on what an SBA loan can pay for

Each entry gives the short answer. Open it for the full explanation and its sources.

What can an SBA 7(a) loan be used for?

A 7(a) loan can pay for real estate, construction, equipment, inventory, supplies, working capital, eligible debt refinancing and business purchases, up to $5,000,000. The list is in 13 CFR 120.120 and SOP 50 10 8.1, Sec. A, Ch. 3, Para. A.

What can you not use an SBA loan for?

SBA loans cannot fund floor plan financing, investment property, past-due trust taxes or Small Business Investment Company (SBIC) debt. They also cannot pay most owner distributions or a creditor positioned to take a loss. The full list is 13 CFR 120.130 and SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.

Can an SBA loan be used for working capital?

Yes, if it is a 7(a) loan such as SBA Express. Working capital for everyday operations is an eligible use, with a term of up to 10 years. A 504 loan cannot fund it (SOP 50 10 8.1, Sec. A, Ch. 3, Para. A.2.d; 13 CFR 120.884(d)).

Can SBA loan proceeds cover payroll?

Yes. Payroll is a normal operating expense paid from the working capital part of a 7(a) loan, and SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.3.c does not require the lender to document each such disbursement. Past-due payroll taxes are barred.

What if most of an SBA loan is working capital?

The lender must justify it. SOP 50 10 8.1 requires a written explanation when working capital is 50% or more of proceeds. That covers Standard 7(a) loans and 7(a) Small loans over $50,000 (Sec. B, Chs. 1-2).

Can an SBA loan be used to buy inventory?

Yes, on a 7(a) loan. Inventory, supplies and raw materials are eligible uses (13 CFR 120.120(b); SOP 50 10 8.1, Sec. A, Ch. 3, Para. A.2). The term can run up to 10 years. A 504 loan cannot buy inventory.

Can an SBA loan be used for floor plan financing?

No. Floor plan financing is a prohibited use of SBA loan proceeds under 13 CFR 120.130(c) and SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.3. CAPLines, Manufacturers' Access to Revolving Credit (MARC) and EWCP loans repeat the bar in their own chapters.

Can an SBA loan be used to buy equipment?

Yes. Any SBA loan can buy or lease fixed assets (13 CFR 120.120(a)(6)). A 7(a) equipment loan can run 10 years, or up to 15 years if the IRS asset class useful life supports it. See SOP 50 10 8.1, App. 17.

Can an SBA loan buy a work truck or other vehicle?

A 7(a) loan can, as a fixed asset used in the business (13 CFR 120.120(a)(6)). SOP 50 10 8.1, App. 19 addresses vehicles bought with loan proceeds. A 504 loan generally cannot (13 CFR 120.884(e)(2)). Vehicles held for resale are different. Lender policy varies.

Can an SBA loan pay for software or AI tools?

Yes, on a 7(a) loan. SOP 50 10 8.1, Sec. A, Ch. 3, Para. A.2.d.i lets working capital pay for business software and cloud services. SBA's 7(a) page also lists AI-related expenses alongside machinery and equipment.

Can an SBA loan pay for leasehold improvements?

Yes. A 7(a) loan can fund improvements to leased space. The term can run 10 years, plus up to 12 months to complete the improvements (SOP 50 10 8.1, App. 17, Para. A.4). Proceeds cannot improve space you sublease (Sec. A, Ch. 3, Para. C.1.f).

Can an SBA loan buy rental or investment property?

No. Property held primarily for sale, lease or investment is a prohibited use under 13 CFR 120.130(d). You can buy a building you occupy and rent out up to 49% of an existing building (SOP 50 10 8.1, Sec. A, Ch. 3, Paras. B.5 and C.1).

Can SBA loan proceeds be paid to an owner?

Only in narrow cases. 13 CFR 120.130(a) bars payments, distributions or loans to Associates, which includes owners of more than 20%. The exceptions are fair pay for services actually rendered and eligible changes of ownership (SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.1).

Can an SBA loan repay money I lent my company?

Generally no, if you are an Associate of the business. SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.1 bars payments to Associates, and a 504 project cannot refinance debt owed to one (Sec. C, Ch. 1, Para. C.10.n). Owners over 20% are Associates.

Can an SBA loan fund another business I own?

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.

Can an SBA loan pay past-due taxes?

Not trust taxes. 13 CFR 120.130(e) bars paying past-due payroll, sales or similar taxes. SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.6 may permit delinquent business income taxes if you have an approved IRS payment arrangement and are current on it.

Can I use an SBA loan for personal expenses?

No. SOP 50 10 8.1, Sec. B, Ch. 2, Para. A says proceeds must be used exclusively for business-related purposes, and 13 CFR 120.130(f) bars any purpose that does not benefit the business. On SBA Form 1919 you certify proceeds go only to the business.

Which SBA loans can be revolving lines of credit?

Only SBA Express, CAPLines, MARC, Export Express and the Export Working Capital Program. The 7(a) Working Capital Pilot also revolves and runs August 1, 2024 through July 31, 2027. Other 7(a) loans cannot (SOP 50 10 8.1, Sec. A, Ch. 3, Para. B.4; 89 FR 57353).

Can SBA loan proceeds pay a broker or packager?

It depends on who hired them. An agent the lender hires cannot be paid from proceeds, even from working capital (SOP 50 10 8.1, Sec. A, Ch. 4, Para. D.1.e). An agent you hire may bill you, but outside EWCP the SOP does not say those fees can be financed.

Do you have to prove how you spent an SBA loan?

Often yes, through your lender. SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.3 requires the lender to document each disbursement and get evidence such as paid receipts. Working capital spent on normal operating expenses does not need to be documented.

Can the use of proceeds change after SBA approval?

Not on your own. The lender must disburse under the SBA Terms and Conditions (SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.3). Whether a change needs SBA approval or notice is set by SOP 50 57 and the 7(a) Lender Matrix, not SOP 50 10.

Can a 504 loan be used for working capital?

No. A 504 loan pays for major fixed assets such as land, buildings and long-term machinery and equipment, not working capital or inventory. See 13 CFR 120.884(d) and sba.gov/loans/504-loans.