For SBA lenders
Short answer
Lenders ensure compliance by detailing the specific uses in the loan authorization, requiring invoices or proof of payment for disbursements, and conducting post-disbursement verification, especially for working capital.
SBA funds must be used for eligible business purposes as stated in the loan authorization. For working capital, lenders must verify that funds are used for operational expenses, inventory, or accounts receivable, not for ineligible purposes like payments to owners, speculative investments, or refinancing ineligible debt. This involves obtaining detailed breakdown of projected uses, collecting supporting documentation for each disbursement, and sometimes conducting site visits or forensic reviews post-closing.
A 7(a) loan includes $100,000 for working capital. The lender requires the borrower to submit invoices for inventory purchases and utility payments to confirm proper use of funds and disburse against these verified expenses, rather than making a lump sum disbursement.
Insider move
Misuse of loan proceeds is a common cause for guaranty repair or denial. Lenders must implement robust controls to verify that all disbursed funds are used for the authorized, eligible purposes, diligently documenting all transactions.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
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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