SBA SOP 50 10 8, A.Ch1.E — TYPES OF INELIGIBLE BUSINESSES
Verbatim text of SBA SOP 50 10 8 section A.Ch1.E (TYPES OF INELIGIBLE BUSINESSES), effective 2025-06-01. 5 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, A.Ch1.E — TYPES OF INELIGIBLE BUSINESSES — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 A.Ch1.E
E. TYPES OF INELIGIBLE BUSINESSES The SBA Lender must determine whether the Applicant is one of the types of businesses listed as ineligible (13 CFR § 120.110). Certain business types appearing on this list may be eligible under limited circumstances, as discussed below. 1. Non-profit businesses are ineligible (for-profit subsidiaries may be eligible). 13 CFR § 120.110(a) 2. Businesses Engaged in Lending 13 CFR § 120.110 (b). SBA cannot guarantee a loan that provides funds to businesses primarily engaged in lending, investment, or to an otherwise eligible business engaged in financing, factoring, or investment not related or essential to the business. This prohibits SBA Loans to: i. Banks; ii. Life Insurance Companies (but not independent agents); iii. Finance Companies; iv. Factoring Companies; v. Investment Companies;
SOP 50 10 8 A.Ch1.E.vi
vi. Bail Bond Companies; and vii. Other businesses whose stock in trade is money. The limited circumstances under which certain businesses engaged in lending may be eligible are as follows: i. A pawn shop that provides financing is eligible if more than 50% of its revenue for the previous year was from the sale of merchandise rather than from interest on loans. ii. A business that provides financing in the regular course of its business (such as a business that finances credit sales) is eligible, provided less than 50% of its revenue is from financing its sales. iii. A mortgage servicing company that disburses loans and sells them within 14 calendar days of loan closing is eligible. Mortgage companies primarily engaged in the business of servicing loans are eligible. Mortgage companies that make loans and hold them in their portfolio are not eligible. iv. A check cashing business is eligible if it receives more than 50% of its revenue from the service of cashing checks. v. A business engaged in providing the services of a financial advisor on a fee basis is eligible provided they do not use loan proceeds to invest in their own portfolio of investments. 3. Passive Businesses 13 CFR § 120.110(c): Businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds are not eligible, except Eligible Passive Companies under 13 CFR § 120.111. Businesses primarily engaged in subdividing real property into lots and developing it for resale on its own account are not eligible. Businesses that are primarily engaged in owning or purchasing real estate and leasing it for any purpose are not eligible. i. Shopping centers, office suites (aka salon suites), ghost kitchens, and similar business models that generate income by renting space to accommodate independent businesses that provide services directly to the public are not eligible unless all of the following apply: a) The revenue is earned through membership dues (not rent); and b) The business’s customers do not have an assigned space that they know they can return to each time they visit (i.e., customers do not get an office with a lockable door or a particular kitchen setup and the space cannot be personalized); and c) The business is responsible for upkeep and maintenance and is supplying the equipment necessary for a fully functioning office/kitchen where customers can drop in and begin working. It is acceptable for customers to bring their own tools with them (e.g., kitchen knives). ii. A business is either fully eligible or fully ineligible. If a business has a combined model (part of the revenue is from rent and part from membership dues), it is not eligible. Businesses that lease land for the installation of a cell phone tower, solar panels, billboards, or wind turbine also are not eligible. However, the business operating the cell phone tower, solar panel, billboard, or wind turbine is eligible. Businesses that have entered into a management agreement with a third party that gives the management company sole discretion over the business operations are ineligible passive businesses. However, if the management company does not have sole discretion to manage the operations of the business and the Applicant exercises meaningful oversight of the business, the Applicant is eligible. “Meaningful oversight” by the Applicant means involvement in the decisions made concerning the operation of the business, which include a management agreement that provides for the Applicant to do all of the following: i. Approve the annual operating budget; ii. Approve any capital expenditures or operating expenses over a significant dollar threshold; iii. Have control over the bank accounts; and
SOP 50 10 8 A.Ch1.E.vi.ii.iv
iv. Have oversight over the employees operating the business (who must be employees of the Applicant). Regardless whether processing the loan under delegated or non-delegated procedures, unless the management agreement is part of the franchise disclosure documents (FDD) for a brand listed on the Franchise Directory, SBA Lenders must review these agreements to determine whether the agreement makes the Applicant an ineligible passive business. Apartment buildings and mobile home parks are not eligible. Residential facilities that are not licensed as nursing homes or assisted living facilities and do not provide healthcare and/or medical services are not eligible. The limited circumstances under which certain businesses engaged in renting or leasing may be eligible are as follows:
SOP 50 10 8 A.Ch1.E.vi.i
i. Hotels, motels, recreational vehicle parks, marinas, campgrounds, or similar types of businesses are eligible if more than 50% of the business’s revenue for the prior year is derived from transients who stay for 30 days or less at a time and the business complies with all zoning and other legal requirements. If the Applicant is a Start-Up Business, the Applicant’s projections must show that more than 50% of the business’s revenue will be derived from transients who stay for 30 days or less at a time. Rentals of residential or commercial space, whether through an internet platform that connects travelers with hosts or whether reservations are made directly with the owner, must be in compliance with all local laws and regulations, including zoning codes, and homeowners or condominium associations rules. ii. Businesses that are licensed as nursing homes or assisted living facilities and provide healthcare and/or medical services are eligible. Healthcare and/or medical services include but are not limited to services such as wellness checks, monitoring and/or helping take medications, monitoring blood sugar levels, having medical staff onsite (even on a part-time basis). The SBA Lender must consider the terms of the license under which the business operates or will operate when determining eligibility.
SOP 50 10 8 A.Ch1.E.vi.i.iii
iii. Businesses that are engaged in leasing equipment, household goods or other items are eligible. (See Subparagraph E.2. above regarding the eligibility of businesses engaged in lending.) iv. Businesses such as barber shops, hair salons, nail salons, and similar types of personal services businesses are eligible, regardless of whether they have employees or contract with individuals to provide the services that the business is providing directly to the public. (See subparagraphs a) and c) above regarding ineligibility of developers and landlords.) An ineligible business cannot obtain an SBA Loan for any purpose, including the purchase or construction of a building for its own use.
Operationalizing SBA SOP 50 10 8, A.Ch1.E — TYPES OF INELIGIBLE BUSINESSES
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Source of record: https://claudeforcompliance.com/regs/sba-sop-a-ch1-e/
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