For SBA lenders
Short answer
The SBA defines a passive business as one that primarily earns income from passive investments rather than active trading or services, making it ineligible for a 7(a) loan. This includes businesses where the primary activity is owning and leasing real estate without active management or providing services.
SBA policy generally prohibits loans to businesses engaged in passive activities. This typically applies to businesses whose primary function is holding real estate for investment purposes, without engaging in active management, substantial value-add services, or other operational aspects. The key is whether the business actively generates income through its own operations, rather than simply collecting rent or dividends.
A lender reviews an application for a 7(a) loan to purchase a commercial building that the borrower intends to lease to various tenants. If the borrower does not plan to actively manage the property, provide significant tenant services, or perform substantial renovations, the lender would likely deem it a passive business and ineligible.
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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