What can you not use an SBA loan for?
Short answer
SBA loans cannot fund floor plan financing, investment property, past-due trust taxes or 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.
In this answer, SBIC means Small Business Investment Company.
SBA bars eleven categories of use in Section A, Chapter 3, Paragraph B of SOP 50 10 8.1, which applies 13 CFR 120.130. The bar also covers replacing funds you already used or borrowed for one of these purposes.
- Payments, distributions or loans to an Associate of the business, except fair pay for services actually rendered and eligible changes of ownership
- Refinancing a debt owed to a Small Business Investment Company or a New Markets Venture Capital Company
- Floor plan financing
- Revolving lines of credit, except under SBA Express, CAPLines, Export Working Capital Program (EWCP), Manufacturers' Access to Revolving Credit (MARC) and Export Express
- Real or personal property held primarily for future development, sale, lease or investment, including excess land
- Past-due payroll, sales or similar trust taxes
- For 504 loans, relocating out of a community with a one-third net workforce cut or a substantial rise in unemployment, absent Certified Development Company (CDC) justification
- Paying a creditor in a position to sustain a loss that would shift to SBA
- Any purpose that does not benefit the small business, including a loan for an affiliated business
- A commercial property assessed clean energy (C-PACE) loan on a property that has or will have a 7(a) or 504 loan
- Any use restricted by 13 CFR 120.201 or 120.884
Some programs add limits. A Contract CAPLine cannot fund permanent working capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition or fixed assets (Sec. B, Ch. 4, Para. A.2.b). A 504 loan cannot fund working capital, franchise fees or advertising (13 CFR 120.884(d)). Inventory is limited to 7(a) loans and microloans (13 CFR 120.120(b)).
A loan cannot carve out a slice for an ineligible purpose either. No part of a 7(a) loan may be guaranteed at zero percent (App. 16, Para. A).
Sources
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. B, Restrictions on Uses of Proceeds, Paras. B.1-B.11 (p. 53)
- 13 CFR § 120.130
- 13 CFR § 120.201
- 13 CFR § 120.884
- SOP 50 10 8.1, Sec. B, Ch. 4, Para. A.2.b, Contract CAPLines (p. 144)
- SOP 50 10 8.1, App. 16, Para. A, General Requirements, Zero Percent Guaranty (p. 387)
- 13 CFR § 120.120
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