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7(a) Eligibility

While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. Applicant businesses must:

  • Operate for profit;

  • Be engaged in, or propose to do business in, the United States or its possessions;

  • Have reasonable owner equity to invest;

  • Use alternative financial resources, including personal assets, before seeking financial assistance.

Special Considerations

Special considerations apply to some types of businesses and individuals.

Franchises are eligible except in situations where a franchisor retains power to control operations to such an extent as to be tantamount to an employment contract. The franchisee must have the right to profit from efforts commensurate with ownership.

Recreational facilities and clubs are eligible provided: (a) the facilities are open to the general public, or (b) in membership-only situations, membership is not selectively denied to any particular group of individuals and the number of memberships is not restricted either as a whole or by establishing maximum limits for particular groups.

Farms and agricultural businesses are eligible; however, these applicants should first explore the Farm Service Agency (FSA) programs, particularly if the applicant has a prior or existing relationship with FSA.

Fishing vessels are eligible; however, those seeking funds for the construction or reconditioning of vessels with a cargo capacity of five tons or more must first request financing from the National Marine Fisheries Service (NMFS), a part of the Department of Commerce.

Medical facilities (hospitals, clinics, emergency outpatient facilities, and medical and dental laboratories) are eligible. Convalescent and nursing homes are eligible, provided they are licensed by the appropriate government agency and services rendered go beyond those of room and board.

An Eligible Passive Company (EPC) is a small entity that does not engage in regular and continuous business activity. An EPC must use loan proceeds to acquire or lease, and/or improve or renovate real or personal property that it leases to one or more Operating Companies for conducting the Operating Company's business. The EPC must comply with the conditions set forth in 13 CFR Sec 120.111.

Change of ownership. Loans for this purpose are eligible provided the business benefits from the change. In most cases, this benefit should be seen in promoting the sound development of the business or, perhaps, in preserving its existence. Loans cannot be made when proceeds would enable a borrower to purchase: (a) part of a business in which it has no present interest; or (b) part of an interest of a present and continuing owner. Loans to effect a change of ownership among members of the same family are discouraged.

Legal aliens are eligible; however, consideration is given to the type of status possessed (e.g., resident, lawful temporary resident, etc.) in determining the degree of risk relating to the continuity of the applicant's business. Excessive risk may be offset by full collateralization. The various types of visas may be discussed in more detail with the local SBA office. Use USCIS Form G-85 for verification of citizenship.

Probation or parole. Applications will not be accepted from firms where a principal (any one of those required to submit a personal history statement, SBA Form 912) is currently incarcerated, on parole, or on probation; is a defendant in a criminal proceeding; or whose probation or parole is lifted expressly because it prohibits an SBA loan. This restriction would not necessarily preclude a loan to a business where a principal had responded in the affirmative to any one of the questions on the Statement of Personal History. These judgments are made on a case-by-case evaluation of the nature, frequency, and timing of the offenses. Fingerprint cards (available from the local SBA office) are required any time a question on the form is answered in the affirmative.

Ineligible Businesses

Ineligible businesses include those engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole. Specific types of businesses not eligible include:

Real estate investment firms, when the real property will be held for investment purposes as opposed to loans to otherwise eligible small business concerns for the purpose of occupying the real estate being acquired.

Firms involved in speculative activities that develop profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the regular activities of the business.

Dealers of rare coins and stamps are not eligible.

Firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies (not agents), and any other firm whose stock in trade is money.

Pyramid sales plans, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants. Such products as cosmetics, household goods, and other soft goods lend themselves to this type of business.

Firms involved in illegal activities that are against the law in the jurisdiction where the business is located. Included in these activities are the production, servicing, or distribution of otherwise legal products that are to be used in connection with an illegal activity, such as selling drug paraphernalia or operating a motel that permits illegal prostitution.

Gambling activities, including any business whose principal activity is gambling. While this precludes loans to racetracks, casinos, and similar enterprises, the rule does not restrict loans to otherwise eligible businesses, which obtain less than one-third of their annual gross income from either the sale of official state lottery tickets under a state license, or legal gambling activities licensed and supervised by a state authority.

Charitable, religious, or other non-profit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives are not eligible.

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