For SBA lenders
Short answer
The SBA generally defines a 'passive business' as ineligible if it primarily generates income from passive activities like renting real estate with no active management or significant services provided. Businesses primarily engaged in lending are also ineligible.
SBA 7(a) loans are intended for operating businesses, not passive investments. A business is considered passive and generally ineligible if it derives more than 50% of its gross revenue from passive activities, such as owning and leasing real estate without providing substantive services, or if its primary purpose is relending. If the business is an eligible operating company, it may lease out a portion of its property.
A loan applicant operates a business that owns a commercial building and leases all its units to other businesses, providing only basic property management. This business would be considered passive and ineligible for a 7(a) loan due to a lack of active engagement in a trade or business.
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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