What Industries Does The SBA Lend To?

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Ok, so the title of this article is a little misleading.  The SBA doesn’t really say what industries they WILL lend to.  Rather, they tell us which industries they WILL NOT lend to.  The SBA has determined that some business types simply don’t fit the mission of the SBA lending programs, and delineated exceptions where appropriate.  So here we go:

The SBA will not lend to non-profits.  The SBA program is intended to create jobs and economic growth, so non-profits simply don’t fit that mission.

The SBA will not lend to businesses who are engaged in lending.  This includes banks, life insurance companies, finance companies, factoring companies, investment companies, bail bond companies.  There are certain exceptions to these restrictions, since some business are quasi-lenders, such as pawn shops who offer loans but also sell merchandise.  Here are the exceptions:

– Pawn shops where 50% of prior year’s revenue was from merchandise sales rather than loan interest.

– A business that provides financing in the ordinary course of business, as long as less than 50% of revenue is from financing.

– Mortgage companies that sell loans within 14 days of closing.  Portfolio lenders (ie lenders who make and hold loans)

– Check cashing business as long as 50% or more comes from check cashing.

– Financial advisors who work on a fee basis, as long as they do not use loan proceeds to invest in their own portfolio of investments.  (Note: I see a pretty obvious loophole here, since money is fungible.  By this I mean a financial advisor could use loan proceeds to pay rent, salaries, and other operating costs, which would free up cash to invest in their own portfolio of investments.  Technically, this approach would comply with the SBA guideline for financial advisors.)

The SBA will not lend to passive businesses.  This includes owners who do not actively use or occupy more than 50% of a property, real estate developers engaging in subdividing property into lots, businesses that primarily own real estate for the purpose of leasing it out (shopping centers, salon suites), and apartment buildings.

Exceptions to the passive business rules include hotels, motels, marinas, campgrounds provided that 50% of revenue comes from “transients”  who stay 30 days or less.  (Note: Clearly, they think that if your customers stay less than 30 days, you are actually running a business rather than just being a landlord.)  Other exceptions include nursing homes, assisted living facilities, businesses engaged in leasing equipment, barber shops, nail salons and hair salons.

The SBA will not lend to Life Insurance Companies (life insurance agents are allowed, subject to certain conditions).

The SBA will not lend to businesses that are located outside the United States.

The SBA will not lend to pyramid schemes or multilevel marketing businesses.

The SBA will not lend to most legal gambling businesses.

The SBA will not lend to businesses that restrict patronage, such as a women’s only gym (Note: you can market to women, but must allow men to join if they wish).

The SBA will not lend to government owned businesses, businesses that promote religion, or businesses that engage in SBA loan packaging.

The SBA will not lend to a business if an associate if incarcerated, on probation, on parole, or currently subject to an indictment or other means by which formal criminal charges are brought. (Note: there is an appeals process where a person can ask the SBA to reconsider).

The SBA won’t lend to businesses that offer “prurient” sexual material.  Sorry porn stars, you’ll have to financing your next project elsewhere!

The SBA won’t lend to businesses that engage in activities that are speculative (commodities training, day trading etc), political lobbying activities, businesses on which the government has previously lost money, businesses owned by a non-US citizen (business must be at least 51% owned by a US citizen.

Overall, many of the items on the prohibited list make sense.  The whole idea is to help American small business owners that want to run traditional businesses.  The SBA is not interested in financing businesses that are controversial (pornography), speculative (day trading), have questionable reputations (multilevel marketing), or are primarily passive investments (apartment buildings).  While the list seems long, there are tons a businesses out there that the SBA will finance.

Jason Milleisen can answer your questions about applying and being approved for an SBA loan.  Feel free to call (toll free 1-877-436-4533) or email me (jason@jasontees.com).   If you retain me to help you with your financing needs, I’ll give you a rebate after your loan closes equal to 10% of my commission, up to $500.

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