SBA SOP 50 10 8.1, A.Ch3.A — Eligible Uses of Proceeds

SOP 50 10 8.1 A.Ch3.A

Effective 2026-10-01 · publisher's stamp for this provision

Chapter 3: Uses of Proceeds A. Eligible Uses of Proceeds 13 CFR § 120.120 1. A Borrower may use loan proceeds from any SBA Loan to: a. Acquire land (by purchase or lease) as part of an eligible project; b. Improve a site (e.g., grading, streets, parking lots, landscaping) including up to 5 percent for community improvements such as curbs and sidewalks; c. Purchase one or more existing buildings; d. Convert, expand, or renovate one or more existing buildings; e. Construct one or more new buildings; f. Acquire (by purchase or lease) and install fixed assets (for a 504 loan, these assets must have a useful life of at least 10 years and be at a fixed location, although short-term financing for equipment, furniture, and furnishings may be permitted where essential to and a minor portion of the 504 Project); g. Finance a Lender’s Other Real Estate Owned (OREO): When loan proceeds will be used to finance the purchase of real estate owned by the 7(a) Lender; or for 504, the Third Party Lender, making the loan, the application must: i. Include an independent real estate appraisal that meets the SBA Loan Program Requirements (the appraisal requirement cannot be delayed until loan closing). For 7(a), the appraisal must also provide the liquidation value of the real estate. ii. Include an explanation of the circumstances surrounding the 7(a) Lender or Third Party Lender’s acquisition of the real estate. If the acquisition of the property was triggered by a business failure at that particular location, the SBA Lender must submit a detailed explanation of why the new Applicant will succeed at that same location; and iii. For 7(a): Identify the SBA Lender’s cost in the real estate. In order to get the full SBA guaranty, the sales price may not exceed the mortgage balance plus care and preservation expenses or the liquidation value, whichever is less. If the sales price is greater than the mortgage balance plus care and preservation expenses or the liquidation value (whichever is less), then the SBA guaranty will be reduced accordingly. For example: OREO Sales Price: $1.2 million Lender’s costs or liquidation value (whichever is less): $1.0 million Guaranty amount: 75% of $1.0 million: $750,000 Effective SBA guaranty: $750,000/$1,200,000: 62.5% 2. For 7(a) only, Borrower may also use loan proceeds for: a. Inventory; b. Supplies; c. Raw materials (including work-in-progress); d. Working capital to finance everyday operations and short-term operational needs. i. Working capital may be used to acquire and/or use business software or cloud computing services. Examples may include facilitating business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses; ii. If the Operating Company is a Co-Borrower with the Eligible Passive Company, part of the loan proceeds may be applied for working capital and/or the purchase of other assets, including intangible assets, for use by the Operating Company. iii. Working capital proceeds may not be used to refinance existing debt or to finance any ineligible purpose. e. Revolving lines of credit under CAPLines, SBA Express, Export Express, and the Export Working Capital Program (EWCP); f. Under CAPLines, Export Express or EWCP: For Standby Letter of Credit when required as a bid bond, performance bond, or advance payment guarantee. 3. Farm Enterprises a. The purchase of land, buildings, and land improvements (fencing, irrigation systems, construction of dikes, silos, barns, hog and dairy facilities, etc.) as part of an eligible project; b. Construction, renovation, or improvement (including water systems) of farm buildings other than residences; c. For 7(a) only: d. The purchase of farm machinery and equipment; e. The purchase of seed and the acquisition of animals; f. Operating expenses directly related to the farming operation, excluding personal or family living expenses; and g. The refinancing of debt related to the farming operation, excluding personal or family debt, provided the refinancing meets SBA Loan Program Requirements. Note: The acquisition of land in excess of the farming operation’s needs is not an eligible use of proceeds. In addition, the Applicant must not use loan proceeds to purchase vacant or row crop land for possible future use, future construction, or to lease to third parties. For example, a concentrated animal feedlot operation (CAFO) that only requires 10 acres of land for its operation (including housing and feeding of the animals, service and access roads, and waste management facilities) may not use SBA-guaranteed loan proceeds to obtain excess farmland that is not used in the operation of the Applicant. If excess land is being acquired at the same time as the SBA Loan, the excess land must be financed from sources other than SBA and the source of the financing must be documented in the loan file.

Source: SBA SOP 50 10 8.1, A.Ch3.A — Eligible Uses of Proceeds · source URL · snapshot 0fb0c4692cf52938