For SBA lenders
Short answer
A 'passive business' is generally one that primarily holds real or personal property for investment purposes, rather than actively engaging in operational trade or business activities.
The SBA 7(a) program is designed to support active businesses that create jobs and contribute to the economy. Businesses whose primary purpose is to derive passive income (e.g., renting real estate with minimal services, holding investments) are generally ineligible, unless structured as an Eligible Passive Company (EPC) with an Operating Company (OC) that meets eligibility requirements.
A borrower seeks a 7(a) loan to acquire a building that will be leased to multiple tenants with no active management or services provided. This would be deemed a passive business and generally ineligible. However, if the borrower forms an OC to actively manage and operate a business within that building (e.g., a restaurant), then an EPC/OC structure might be considered.
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.
More on eligibility determinations
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day