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Eligible and Ineligible Industries for SBA 7(a) Loans
Most businesses can apply for the SBA 7(a) loan, but a few, like gambling businesses, government-owned organizations, lending firms, and nonprofits, are ineligible.
- Ineligible Industries for the SBA 7(a) Loan Program
- Consumer and Marketing Cooperatives
- Dealers of Rare Coins and Stamps
- Gambling
- Government-Owned Organizations
- Illegal Firms
- Lending Firms and Loan Packaging Firms
- Multi-Sales Distribution
- Nonprofits
- Pyramid Schemes or Multi-Level Marketing Schemes
- Real Estate Investment Firms
- Religious Institutions
- Speculation-Based Businesses
- Eligible SBA 7(a) Business Opportunities
- Assisted Living Facilities
- Motels, Hotels, and B&Bs
- Restaurants
- Bars and Clubs
- Retail Stores
- Business Services and Office-Based Companies
- Auto Repair Shops
- Car Dealerships
- Car Wash Companies
- Preschools and Daycares
- Self-Storage Companies
- Gas Stations and Convenience Stores
- Franchises
- Healthcare Practices
- Manufacturing and Production
- E-commerce and Online Businesses
- Professional Services
- Next Steps for Getting an SBA 7(a) Loan
- Related Questions
- Get Financing
Many businesses can apply for the SBA 7(a) loan, but some industries are ineligible. Your business must be for profit and operate mainly in the United States to be eligible.
Approval depends on the specific business, your lender's opinion, and your ability to repay the loan.
Let's walk through which industries are eligible and ineligible for the SBA 7(a) loan program.
Ineligible Industries for the SBA 7(a) Loan Program
Find a list of ineligible industries below, with a brief description.
Consumer and Marketing Cooperatives
Cooperatives don't have a primary owner responsible for paying back funding, so they're ineligible for SBA loans.
Dealers of Rare Coins and Stamps
Their business value is speculative and unstable, making them too risky for SBA loans.
Gambling
Businesses earning over a third of their income from gambling activities are considered too unpredictable for SBA loans.
Government-Owned Organizations
These organizations aren't considered small businesses and are government-funded, creating a conflict of interest.
Illegal Firms
This one should be obvious. If it's not: Illegal businesses don't qualify for SBA loans due to their questionable character.
Lending Firms and Loan Packaging Firms
Banks, finance, leasing, and insurance companies are ineligible due to conflicts of interest and competition.
Multi-Sales Distribution
These businesses are considered too risky to qualify for SBA loans.
Nonprofits
Nonprofits are ineligible for SBA loans as they often lack resources and guaranteed revenue.
Pyramid Schemes or Multi-Level Marketing Schemes
MLM participants are considered independent contractors, not small businesses, and therefore don't qualify for SBA loans.
Real Estate Investment Firms
Property values are speculative and changeable, making these firms ineligible for SBA loans.
Helpful Resource: How To Use an SBA 7(a) Loan for Land or Real Estate
Religious Institutions
Churches, along with any other organization promoting religious goals, are considered ineligible.
Speculation-Based Businesses
Businesses based on speculation are too risky and don't meet the "good character" criterion for SBA loans.
Eligible SBA 7(a) Business Opportunities
If your industry isn't on the ineligible list, you may qualify for an SBA 7(a) loan. Just follow the application process, gather your documentation, and show your lender how you'll repay the loan.
Here's a list of eligible types of businesses. Note that this isn't an exclusive list. As long as your business isn't included up above, you're probably in the clear.
Assisted Living Facilities
Assisted living properties are generally eligible for SBA 7(a) loans. These loans can be used to expand or upgrade existing facilities, among their myriad other uses.
Motels, Hotels, and B&Bs
If you’re a hotel or hospitality manager, the SBA 7(a) will allow you to maintain a higher cash flow than other kinds of financing. Making payments as a new business owner can be more digestible when they’re spread out over a longer term.
Be sure to check with the SBA guidelines about franchise agreements. Hotels aren’t always approved for funding, but when they are, they tend to receive large volumes of funds, perhaps because of the weight of real estate collateral. Hotel, motel, and B&B 7(a) loan funds can be used for any related needs such as acquiring, refinancing, constructing or renovating, property investment, partner buyout, and even loan consolidation.
Restaurants
SBA 7(a) loans appeal to restaurant owners for many reasons. Restaurants in general are involved in the largest number of SBA loans. Smaller down payments (as low as 10%) and a flexible structure get rid of some of the new business pressure and let you focus on moving full speed ahead.
As long as the requested 7(a) loan amount is less than $5 million, even experienced, larger restaurant franchisees with multiple existing stores stand to benefit from this kind of financing.
Bars and Clubs
The nightclub and bar industry can generally make good use of SBA 7(a) loans. These loans are a great financing option for nightclubs due to manageable terms and a quick turnaround (approval can happen in as little as seven days). The SBA 7(a) is also the least expensive financing available. SBA 7(a) loans could help with numerous licensing fees, technology upgrades, payroll and benefits, marketing and social media promotion, upgraded inventory, renovation, and even expansion.
Retail Stores
Retail stores make up roughly 16% of existing commercial real estate.
In order for your retail business to qualify for and SBA 7(a), you’ll need to show you have have less than $6 million in annual sales. Both the SBA and your lender will also want to see that you’ve got a legitimate financial need and are paid up on other federal loans.
SBA 7(a) payment terms for retail stores can last up to 25 years if you’re buying a building, up to 10 years for equipment purchases, and you can get seven years for working capital.
Business Services and Office-Based Companies
If your company has fewer than 500 employees, the SBA 7(a) can boost your resources for day-to-day operational costs, expansion, inventory needs, and even refinancing debt when you can't get funding through normal channels.
The SBA also focuses on boosting female business owners, since the lack of financing for female entrepreneurs has been identified as a major issue. SBA 7(a) loans for office-based companies can be used for anything from buying or leasing office space, to purchasing equipment, and even meeting payroll expenses.
Auto Repair Shops
Auto repair shops are another appealing business model according to lenders and the SBA.
Independent auto shops are highly favored by car owners, and a whopping 70% of out-of-warranty cars are taken to the independents. Because the industry shows big opportunity for growth, auto repair shop owners might choose to use SBA 7(a) loans to expand through commercial real estate, new technology, or other savvy business investments.
Car Dealerships
In 2009, the SBA modified the 7(a) loan program guidelines to specifically give auto and RV dealers access to greater financing opportunity, doubling the number of dealerships eligible for the SBA 7(a) program.
According to the SBA, a car dealership can qualify for funding as long as their net worth is under $8.5 million and their net income averages less than $3 million. The funding dealerships could access under the SBA program would be used for working capital as opposed to floorplan financing, though.
Car Wash Companies
Car wash facilities that are in trouble or have closed are being purchased for a small percentage of what new construction would cost. Many full-serve sites are being converted to either express-exterior washes or the flex-serve, lowering the cost of doing business and increasing likelihood of success, especially in the eyes of the SBA and your lender. The SBA can also guarantee a car wash company loan based on projected income instead of requiring a documented track record.
Car wash owners can access SBA 7(a) financing for working capital, car wash equipment, new cash wash construction, buying an existing car wash, and even refinancing debt. You can take advantage of the maximum SBA 7(a) loan amount increase, with up to $5 million available.
Preschools and Daycares
Quality childcare (and preschool) services are in high demand, especially within individual communities. Close to 60% of all parents in the country find childcare to be a necessity. The industry as a whole is valued at more than $60 billion as of 2023.
The SBA 7(a) loan program is particularly suitable for childcare businesses because it allows the financing of goodwill and other intangibles. As long as commercial real estate makes up the largest percentage of the total, funding of up to $5 million can support franchising, renovations, and childcare facility operations. The SBA 7(a) program is a fantastic way for childcares, daycares, and preschools to get assistance with commercial real estate financing.
Self-Storage Companies
In 2010, the SBA 7(a) loan program became an option for self-storage facilities. This provided financing options to self-storage owners eager to acquire, build, expand or renovate storage facilities while also keeping their independence.
Financing of up to 90% is possible for those looking to build, acquire or refinance a facility, assuming you have enough relevant business experience and other strengths to get your lender’s support. If you’re already a self-storage owner, having good credit and a stellar track record can make you a shoe-in.
Gas Stations and Convenience Stores
To get an SBA 7(a) loan for a gas station or convenience store, you’ll need to prove that the cash flow can cover both the loan and a salary for you as the establishment owner.
The SBA has begun emphasizing prior experience of the borrower, so if you’re not an experienced gas station or convenience store owner, you’ll most likely need a partner with direct management experience or retain the previous owner as manager (if you’re making a new purchase). Sometimes, getting industry training can help your chances.
Franchises
Franchise businesses are often seen as lower-risk investments by lenders, as they typically come with an established brand, support from a corporate structure, and a proven business model. SBA 7(a) loans are particularly well suited for franchises, as they can be used for a variety of purposes such as purchasing equipment, leasehold improvements, working capital, and acquiring or constructing new locations.
The SBA also maintains a Franchise Directory, which lists franchise brands that have been preapproved for SBA financing, making the application process smoother for both the franchisee and the lender.
Healthcare Practices
Healthcare practices, such as dental, optometry, veterinary, and medical clinics, can also benefit from SBA 7(a) loans. These loans can be used for purposes like purchasing new equipment, acquiring or expanding practice locations, refinancing existing debt, or providing working capital.
Healthcare practices are generally considered stable and profitable, which makes them attractive to lenders. Having relevant industry experience and demonstrating solid financials will also improve your chances of obtaining an SBA 7(a) loan for your healthcare practice.
Manufacturing and Production
Manufacturing and production businesses are vital to the U.S. economy and are eligible for SBA 7(a) loans. These loans can be used for a wide range of purposes, including purchasing equipment and machinery, buying or leasing commercial real estate, working capital, and expanding or modernizing existing facilities.
To qualify for an SBA 7(a) loan, a manufacturing business must meet the SBA's size standards, which vary depending on the specific industry. Strong financials, relevant industry experience, and a solid business plan will improve your chances of securing an SBA 7(a) loan for your manufacturing or production business.
E-commerce and Online Businesses
E-commerce and online businesses have grown rapidly in recent years and are eligible for SBA 7(a) loans. These loans can be used for various purposes such as purchasing inventory, acquiring new technology, marketing and advertising, or expanding your online presence.
To qualify for an SBA 7(a) loan, your e-commerce business must be based in the United States and meet the SBA's size standards. Demonstrating a strong online presence, a history of profitability, and a well-developed business plan will help improve your chances of obtaining an SBA 7(a) loan for your e-commerce or online business.
Professional Services
Professional service businesses, such as law firms, accounting firms, architectural firms, and consulting practices, can also benefit from SBA 7(a) loans. These loans can be used for various purposes, including working capital, refinancing existing debt, purchasing equipment, or acquiring or leasing commercial real estate.
Demonstrating strong financials, relevant industry experience, and a solid business plan will improve your chances of securing an SBA 7(a) loan for your professional service business.
Next Steps for Getting an SBA 7(a) Loan
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Related Questions
How to qualify for a Small Business Loan?
- To qualify for a small business loan, you typically need to have a strong credit score and a solid business plan. Lenders will also want to see that you have a history of making on-time payments and that your business is profitable.
What are the risks of business loans?
- The risks of business loans include the possibility of default, which could lead to the loss of collateral. Business loans also typically have higher interest rates than other types of loans, which could increase the cost of the loan.
- Ineligible Industries for the SBA 7(a) Loan Program
- Consumer and Marketing Cooperatives
- Dealers of Rare Coins and Stamps
- Gambling
- Government-Owned Organizations
- Illegal Firms
- Lending Firms and Loan Packaging Firms
- Multi-Sales Distribution
- Nonprofits
- Pyramid Schemes or Multi-Level Marketing Schemes
- Real Estate Investment Firms
- Religious Institutions
- Speculation-Based Businesses
- Eligible SBA 7(a) Business Opportunities
- Assisted Living Facilities
- Motels, Hotels, and B&Bs
- Restaurants
- Bars and Clubs
- Retail Stores
- Business Services and Office-Based Companies
- Auto Repair Shops
- Car Dealerships
- Car Wash Companies
- Preschools and Daycares
- Self-Storage Companies
- Gas Stations and Convenience Stores
- Franchises
- Healthcare Practices
- Manufacturing and Production
- E-commerce and Online Businesses
- Professional Services
- Next Steps for Getting an SBA 7(a) Loan
- Related Questions
- Get Financing