For SBA lenders
Short answer
Businesses involved in illegal activities under federal law, such as cannabis, are ineligible for 7(a) loans. Businesses in heavily regulated industries, like gambling, must comply with all federal, state, and local regulations and licenses to be considered eligible, and must not derive more than one-third of their gross annual revenue from otherwise prohibited activities.
The SBA maintains a list of ineligible businesses, including those involved in illegal activities (e.g., cannabis, even if state-legal). Businesses whose principal activity involves gambling (casinos, racetracks, etc.) are also generally ineligible, with narrow exceptions for small, licensed businesses where gambling revenue is incidental (less than one-third of gross annual revenue). Lenders must perform extensive due diligence to ensure compliance with all applicable laws and SBA specific prohibitions for such industries.
A lender receives an application for a 7(a) loan from a business that operates a small card room licensed by the state. If the business derives 40% of its revenue from card games and 60% from food and beverage sales, it would be ineligible due to exceeding the one-third gross annual revenue threshold for gambling activities.
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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