For SBA lenders
Short answer
A passive business is generally one that derives income from holding and leasing real estate or other passive investments, rather than actively engaging in trade or service. Such businesses are typically ineligible unless they meet specific exceptions.
SBA policy dictates that businesses primarily engaged in passive activities, such as owning and renting non-owner-occupied commercial or residential property, or deriving income from passive investments, are ineligible. Exceptions exist if the business actively manages the property, provides substantial services, or occupies at least 51% for existing property, or 60% for new construction.
A lender receives an application from an LLC that owns three commercial buildings and leases them to various tenants, providing only minimal property management. The LLC does not occupy any space. This business would be deemed passive and ineligible for a 7(a) loan.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
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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