{"ok":true,"canonical_url":"https://dealroom.so/glossary/pyramid-sales-scheme","api_url":"https://dealroom.so/api/public/glossary/pyramid-sales-scheme","data_freshness":{"sba_records_through":"2026-05-31","fdic_records_through":"2026-03-31","dealroom_last_updated":"2026-06-15","timezone":"America/Chicago"},"source_summary":["Public SBA 7(a) loan records","FDIC institution data","DealRoom lender and franchise enrichment"],"term":{"slug":"pyramid-sales-scheme","term":"Pyramid Sales Scheme","group":"Reading the business","definition":"A business model where participants profit primarily from recruiting new members, rather than from selling actual products or services. These are generally illegal and ineligible for SBA loans.","what_it_means":"The SBA explicitly prohibits loans to businesses involved in pyramid sales schemes. During due diligence, carefully examine the business's revenue model. If income is heavily reliant on recruiting new distributors rather than genuine product sales to end-users, it's a red flag. This can lead to an outright loan denial.","url":"https://dealroom.so/glossary/pyramid-sales-scheme","official_sources":[{"slug":"13-cfr-part-120","title":"13 CFR Part 120 — Business Loans","official_url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120","official_label":"View on eCFR","authority_tier":1,"publisher":"Office of the Federal Register","source_guide_url":"https://dealroom.so/sba-7a/sources/13-cfr-part-120"},{"slug":"sop-50-10","title":"SOP 50 10 — Lender and Development Company Loan Programs","official_url":"https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs","official_label":"View on SBA.gov","authority_tier":2,"publisher":"U.S. Small Business Administration","source_guide_url":"https://dealroom.so/sba-7a/sources/sop-50-10"}],"related":[{"slug":"ineligible-businesses-rule","term":"Ineligible businesses rule","url":"https://dealroom.so/glossary/ineligible-businesses-rule"},{"slug":"multi-level-marketing-company","term":"Multi-Level Marketing Company","url":"https://dealroom.so/glossary/multi-level-marketing-company"},{"slug":"due-diligence","term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"slug":"business-plan","term":"Business plan","url":"https://dealroom.so/glossary/business-plan"}],"related_questions":[{"question":"How does the SBA evaluate the eligibility of an applicant business involved in multi-level marketing or pyramid sales schemes?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-evaluate-the-eligibility-of-an-applicant-business-involved-in-multi-level"},{"question":"Are proceeds from personal investment sales eligible for equity injection?","url":"https://dealroom.so/sba-7a/questions/are-proceeds-from-personal-investment-sales-eligible-for-equity-injection"},{"question":"How does a lender evaluate the market value of collateral when there are limited comparable sales?","url":"https://dealroom.so/sba-7a/questions/how-does-a-lender-evaluate-the-market-value-of-collateral-when-there-are-limited-comparabl"},{"question":"Can I get an SBA 7(a) loan if my business is a startup with no sales yet?","url":"https://dealroom.so/sba-loans/basics/can-i-get-an-sba-7-a-loan-if-my-business-is-a-startup-with-no-sales-yet"},{"question":"How does a lender ensure timely and accurate reporting of 7(a) loan sales on the secondary market to the SBA?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-ensure-timely-and-accurate-reporting-of-7-a-loan-sales-on-the-secondary-"},{"question":"What are the SBA's reporting requirements for 7(a) lenders regarding sales of guaranteed loan portions on the secondary market?","url":"https://dealroom.so/for-lenders/questions/what-are-the-sba-s-reporting-requirements-for-7-a-lenders-regarding-sales-of-guaranteed-lo"}]},"caveats":["Definitions represent DealRoom's plain-English interpretation for buyers; verify regulatory terms against the official SBA and eCFR sources listed.","Not legal, tax, or financial advice, and not an SBA eligibility determination."],"citation":{"label":"DealRoom.so Glossary — Pyramid Sales Scheme","url":"https://dealroom.so/glossary/pyramid-sales-scheme","source_type":"DealRoom Data"}}