For SBA lenders
Short answer
Generally, a business must not be primarily engaged in passive activities to be eligible for an SBA 7(a) loan. The SBA reviews the nature of the business's operations to ensure it is an active enterprise.
SBA defines an eligible business as one that operates for profit and is primarily engaged in a non-passive activity. While some passive income may be incidental to an active business, the primary purpose and activity of the entity must involve active operations. Businesses primarily deriving income from passive investments or rental real estate are typically ineligible.
A borrower applies for a 7(a) loan to acquire a retail store. The store also owns the building and leases a small portion to a barber shop, generating 5% of its gross revenue from rent. This would likely be acceptable as the primary business is active retail.
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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