Qualifications For An SBA Loan: Borrower, Business Type and Property Type

A person who wants to obtain an SBA Loan needs to have a
working knowledge of these qualifications:

  1.     BORROWER

While there are many factors affecting the ability for a person to be eligible as a borrower, the question remains who can be a Borrower for an SBA Loan?

The first test is ownership of a business. Do you work for yourself or do you share ownership of a company which is a legal entity (Corp, LLC, or Trust)?

If you have 100% ownership interest in a business, then the answer is easy. However, if the business is a legal entity, then anyone who owns 20% or more of this legal entity will have to be a Borrower and guarantee the loan. People with less than a twenty percent ownership interest do not usually have to be a Borrower and do not have to be a Guarantor.

If a person owns a business with more than one person, one of these owners needs to be designated as the representative of the company who has the authority to apply for the SBA Loan. This can be accomplished from the designated job position of a person (President, CEO, Managing Member, Trustee) or from a written document signed by all owners of the company.

A Borrower will have to “guarantee” repayment of the loan. In other words, if there is a payment default, a Borrower himself agrees to pay back the Lender in full. Usually, if a Borrower owns real estate or another kind of personal asset which can have a lien placed on it, the Lender will require the Borrower to allow the Lender to place a lien on this asset in case of loan default. The Lender will then be able to take the asset and sell it to be paid back.

The planning for the preservation of assets in case of loan default is an important part of being in business and for anyone contemplating being a Borrower.



A. There are no SBA Regulations which prohibit a particular type of property (real estate or non-real estate) from being eligible as collateral for an SBA Loan.

B. However, SBA Regulations as found on the SBA Website does list certain types of businesses which are not eligible:

i. Real estate investment firms when the loan is used for investment purposes.
Comment – SBA Loan will not fund the purchase of investment real estate.

ii. 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.

Comment – SBA Loan will not fund a business which makes its money by being involved with “Rolling The Dice” transactions.

iii. Dealers of rare coins and stamps

Comment – SBA considers this a speculative activity.

iv. Firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies, and any other firm whose stock in trade is money.

Comment – An SBA Loan cannot finance companies that make their money by using money to earn income.

v. Pyramid sales plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants.
Comment – The SBA wants a company to produce something for the economy. An AMWAY Network Dealership is a good example of this ineligible business type.

vi. Firms involved in illegal activities.

Comment – Federal law still prohibits marijuana sales

vii. Gambling activities including any business whose principal activity is gambling. The rule does not restrict loans to businesses that 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.

Comment – Most SBA Lenders will not allow more than 30 – 49% of all income be from gambling. In addition, SBA Lenders will not finance businesses which have exotic dancers unless these dancers are fully clothed.

viii. Charitable, religious, or other nonprofit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives.

Comment – SBA Lenders will only finance “for profit” companies.

Joel Soforenko is an industry veteran having extensive experience with SBA 7(a), SBA 504 and USDA loans. He has assisted borrowers as a loan originator, processor, underwriter and Manager of the SBA Department of a major origination platform.

For more information contact:

Joel Soforenko
Continental Finance Capital Corporation
(617) 336-3215 x 5