Last week, our blog started discussing how budding entrepreneurs eager to get their business off the ground or operating at the next level, but who remain stymied by insufficient capital may consider securing financing from the U.S. Small Business Administration.
To recap, the SBA — a federal agency designed to help “Americans start, build and grow businesses” — runs the extremely popular 7(a) loan program, which is designed to subsidize a variety of business objectives.
What are some of the business objectives for which 7(a) loan proceeds can be used?
While 7(a) loan proceeds can be used to cover everything from purchasing inventory to covering operational expenses, it’s important to understand they can also be used for perhaps less mundane purposes.
Indeed, entrepreneurs can use 7(a) loan proceeds to cover just some of the following:
- The costs associated with acquiring, expanding or operating an existing business
- The costs of materials, supplies, furniture, fixtures, equipment and machinery
- The costs of renovating existing facilities
- The costs of constructing new facilities
- The costs of acquiring real estate
What are some business objectives for which 7(a) loan proceeds can’t be used?
Even though the possibilities for 7(a) loan proceeds seem endless, it’s very important to understand that the SBA has established a list of purposes for which these funds cannot be used under any circumstances.
Some of these include:
- Repayment of delinquent tax debt at either the state or federal level
- Refinancing of an outstanding debt where the original lender is poised to take a loss and the refinancing would result in the SBA assuming this risk of loss
- Pursuit of a change that will not serve to benefit the business in any capacity
- Objectives found by the SBA to be lacking a strong business purpose
We will continue examining this topic in future posts.
If you are an entrepreneur requiring assistance with a business formation matter — entity selection, employee contracts, regulatory compliance, etc. — please consider consulting with a skilled legal professional who can provide the necessary guidance.