Glossary · Reading the business
In short
A business model where participants profit primarily from recruiting new members, rather than from selling actual products or services. These are generally illegal and ineligible for SBA loans.
The SBA explicitly prohibits loans to businesses involved in pyramid sales schemes. During due diligence, carefully examine the business's revenue model. If income is heavily reliant on recruiting new distributors rather than genuine product sales to end-users, it's a red flag. This can lead to an outright loan denial.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Defined by DealRoom.so SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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