SBA 7(a) Q&A
Short answer
No, working capital from an SBA 7(a) loan generally cannot be used to pay down existing seller debt that is not being assumed by the buyer.
SBA rules dictate that loan proceeds, including working capital, must be used for eligible business purposes. Paying off a seller's personal or business debt not formally assumed by the acquiring entity is not an eligible use of working capital. The acquisition loan is meant to finance the purchase of the business and its operational needs, not to clean up the seller's balance sheet.
A seller has a $20,000 personal loan outstanding. The buyer wants to include $20,000 in working capital to pay this off at closing. The lender would disallow this use, as it's not a legitimate business expense for the acquired entity.
Lenders must ensure that loan proceeds are used strictly for the benefit of the borrowing business and not for the seller's personal financial gain. Any attempt to use working capital for ineligible debt repayment would lead to a denial of that specific use.
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 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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