Who Can Apply for an SBA Loan?

Before becoming eligible for an SBA loan, first you must have been turned down for a conventional loan. Most small businesses that meet this requirement are eligible for SBA loans, although some types of businesses are ineligible. Eligibility generally depends on four factors: 1) the type of business, 2) the size of the business, 3) the use of loan funds, and 4) special circumstances.

Type of Business
The requirements in this category are quite broad. The business must be a for-profit enterprise. It must engage in or must propose to do business in the United States or its possessions. The business owner or loan applicant must have a reasonable financial investment in the business. And the owner must invest other financial resources, including personal assets, before applying for an SBA loan.

Size of Business
The Small Business Act defines an eligible small business as one that is independently owned and operated — and not dominant in its industry. The Act also states that the definition of small business varies from one industry to another. However, most businesses qualify as "small" under the SBA size guidelines.

Use of Loan Funds
Business owners may use SBA loans for a number of business activities, including purchase of real estate; construction, renovation, or leasehold improvements; acquisition of furniture, fixtures, machinery, and equipment; purchase of inventory; and working capital.

A business owner cannot use an SBA loan:

• To purchase real estate where the participant has issued a forward commitment to the developer or where the real estate will be held primarily for investment purposes.
• To finance floor plan needs.
• To make payments to owners or to pay delinquent withholding taxes.
• To pay existing debt, unless it can be shown that the refinancing will benefit the small business and that the need to refinance is not indicative of poor management.

Special Circumstances
Certain other requirements and restrictions apply to businesses and applicants in the following categories:

• Franchises
• Recreational facilities and clubs
• Farms and agriculture
• Fishing vessels
• Medical facilities
• Alter egos
• Change of ownership
• Aliens
• Probation or parole
• Academic schools

For more information on these "special circumstances" rules, consult the SBA special circumstances guidelines.

Ineligible Businesses
Certain types of businesses are explicitly ineligible for SBA loans. Ineligible businesses are those characterized by any of the following:

• Real estate investment and other speculative activities
• Lending activities
• Pyramid sales plans
• Illegal activities
• Gambling activities
• Charitable, religious, or certain other nonprofit institutions
• Businesses with an owner who is on parole

Get started by reading How to Apply for an SBA Loan. Not sure if you meet the requirements for an SBA loan? Check out SBA Key Loan Requirements to see if you qualify.