{"ok":true,"canonical_url":"https://dealroom.so/glossary/pyramidal-distribution-system","api_url":"https://dealroom.so/api/public/glossary/pyramidal-distribution-system","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":"pyramidal-distribution-system","term":"Pyramidal distribution system","group":"The loan itself","definition":"This is a business structure where participants primarily earn money by recruiting new members, rather than selling actual products or services. These businesses are ineligible for SBA loans.","what_it_means":"The SBA explicitly prohibits lending to businesses primarily engaged in pyramidal distribution, multi-level marketing (MLM) where recruitment is the primary income driver, or any scheme deemed illegal. If the target business operates with an MLM component, you need to scrutinize its revenue model to ensure it's not a prohibited pyramidal system. Look for genuine product sales.","url":"https://dealroom.so/glossary/pyramidal-distribution-system","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":"franchise","term":"Franchise","url":"https://dealroom.so/glossary/franchise"},{"slug":"compliance","term":"Compliance","url":"https://dealroom.so/glossary/compliance"}],"related_questions":[{"question":"What specific requirements apply to a franchise system for SBA 7(a) loan eligibility?","url":"https://dealroom.so/sba-loans/basics/what-specific-requirements-apply-to-a-franchise-system-for-sba-7-a-loan-eligibility"},{"question":"How does the SBA evaluate an emerging franchise system for 7(a) loan eligibility?","url":"https://dealroom.so/sba-7a/questions/how-does-the-sba-evaluate-an-emerging-franchise-system-for-7-a-loan-eligibility"},{"question":"If I am buying a franchise, does the SBA need to approve the franchise system?","url":"https://dealroom.so/sba-loans/basics/if-i-am-buying-a-franchise-does-the-sba-need-to-approve-the-franchise-system"},{"question":"How do I check if a specific franchise system is eligible for SBA 7(a) financing?","url":"https://dealroom.so/sba-7a/questions/how-do-i-check-if-a-specific-franchise-system-is-eligible-for-sba-7-a-financing"},{"question":"What if the business I'm buying has poor financial records or no formal accounting system?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-buying-has-poor-financial-records-or-no-formal-accounting-system"},{"question":"How does the SBA evaluate the eligibility of a specific franchise system for 7(a) loans?","url":"https://dealroom.so/sba-7a/questions/how-does-the-sba-evaluate-the-eligibility-of-a-specific-franchise-system-for-7-a-loans"}]},"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 — Pyramidal distribution system","url":"https://dealroom.so/glossary/pyramidal-distribution-system","source_type":"DealRoom Data"}}