For SBA lenders
Short answer
Yes, if the lender fails to verify that the borrower used loan proceeds for their authorized purpose, the SBA may issue a repair or denial for the portion of the loan that was misused.
Lenders are responsible for disbursing loan proceeds according to the authorized use of funds and verifying that the borrower applies them as intended. Misuse of funds, if not caught or prevented by the lender, constitutes a failure of prudent lending and compliance, leading to a potential repair.
A $300,000 7(a) working capital loan is authorized, but the borrower diverts $50,000 to purchase a luxury vehicle for personal use. If the lender failed to detect this through diligent monitoring, the SBA might repair the guaranty for that $50,000 portion.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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