For SBA lenders
Short answer
Businesses engaged in specific activities like passive investments, lending, speculation, gambling, multi-level marketing, or those deriving more than one-third of gross annual revenue from passive activities are generally ineligible.
The SBA has a list of ineligible businesses to ensure its programs support productive small businesses that contribute to the economy. This includes businesses whose primary purpose is to generate passive income (e.g., real estate rentals without significant service), financial businesses (e.g., banks, loan sharks), speculative ventures, or those with ethically questionable operations (e.g., pyramid schemes).
A business whose primary activity is owning and leasing commercial properties without providing any significant management or services to tenants would be deemed an ineligible passive business. However, an owner-occupied building where the business manages other tenants could be eligible.
Insider move
Lenders must carefully review the borrower's business activities, revenue sources, and legal structure to confirm eligibility. Inaccurate determination of eligibility can lead to a denial of the SBA guaranty.
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
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