With their competitive interest rates, predictable monthly payments, and extended repayment terms, SBA 7(a) loans have long been considered the gold standard when it comes to small business loans. Discover how to put your loan to work.
Use of proceeds with an SBA loan
When you apply for an SBA 7(a) loan, you must provide a detailed plan of what you’ll do with the money. You may be allowed to use these loans for a variety of purposes, but they must include one or more of the following:
- Acquiring, refinancing, or improving real estate and buildings
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing and installation of machinery and equipment, including AI-related expenses
- Purchasing furniture, fixtures, and supplies
- Changes of ownership (complete or partial)
- Multiple-purpose loans, including any of the above
1. Acquiring, refinancing, or improving real estate and buildings
You may be able to use your SBA loan to buy a new facility, refinance your mortgage, or perform upgrades on current real estate and buildings. This is especially important for businesses that are moving into a space that was formerly used for another purpose as well as those that need to expand their footprint.
2. Short- and long-term working capital
Working capital supports day-to-day business operations and is calculated as current assets minus current liabilities. Maintaining positive working capital typically helps cover ongoing expenses.
You may also use SBA loan funds to support hiring, marketing, and other operational needs.
3. Refinancing current business debt
Leveraging debt is a common method of scaling businesses. However, depending on the type of debt that you’re carrying on your books, refinancing it may be a better option. For example, if you have several high-interest debts, or you’re dealing with merchant loans that dip into your daily income, refinancing may be a solution.
It’s important to note that borrowers typically need to provide a clear business rationale for a loan to refinance other debt. For example, being on the brink of bankruptcy because you are not successfully managing existing debt will most likely make you less appealing to potential lenders. However, if you have steady cash flow and want to reduce interest rates and make your debt repayments more predictable, an SBA loan may be a great option.
4. Purchasing and installation of machinery and equipment, including AI-related expenses
Upgrading and maintaining equipment is essential for operational efficiency. An SBA loan is often a lower-cost way to finance equipment with repayment terms that better match cash flow.
This option is especially helpful if your business operates in an industry in which technology is constantly evolving. Ensuring that you continue to operate efficiently while exceeding the expectations of your clientele is crucial, and purchasing new equipment may be a great way to do that.
5. Purchasing furniture, fixtures, and supplies
SBA loan proceeds are often used to purchase fixtures, furniture, materials, machinery, and other items needed to outfit or upgrade a business location.
6. Changes of ownership (complete or partial)
Many borrowers are surprised to find that they are able to use an SBA 7(a) loan to purchase all or part of a company. If you’ve found a potential business venture but you lack the funding, you may be able to obtain an SBA loan. Typically, lenders require you to have a good personal credit score, and you may have to offer a personal guarantee.
If you already own a business with others and need to buy out one or more of your partners, you may also be able to use SBA 7(a) funds for that.
7. Multipurpose loans
SBA loans may be used for any combination of the purposes we’ve already discussed. For example, if you need to hire new staff members because you are purchasing new equipment, you may be able to use one loan for multiple purposes.
What can’t an SBA loan be used for?
In general, SBA loans must be used for long-term business development rather than temporary financial relief.
You cannot use an SBA loan for:
- Refinancing personal debt
- Paying delinquent payroll, sales, or real estate taxes
- Payments or loans to business owners or associates
An SBA loan may be able to help your small business grow
While all loans have limitations, SBA loans are designed to help small businesses meet long-term growth goals.
By evaluating where your business is today and where you want it to go, you may be able to determine whether SBA financing is the right fit.
If you’re ready to take the next step and apply for an SBA loan, see if you pre-qualify today.
FAQs
What can I use my SBA 7(a) loan proceeds for?
SBA 7(a) loan proceeds may be used for a wide range of legitimate business purposes. Common ones include working capital, purchasing equipment, acquiring inventory, refinancing certain existing business debt, buying commercial real estate, financing business acquisitions, funding leasehold improvements, and supporting expansion initiatives such as hiring employees or opening a new location. Your intended use of proceeds should align with your business's needs and be clearly explained in your loan application.
Can I use an SBA loan to refinance existing business debt?
Yes, SBA loans are often used to refinance eligible business debt when doing so improves the business's financial position. For example, refinancing may reduce monthly payments, lower interest costs, or replace short-term debt with a longer repayment schedule. Lenders will typically evaluate whether the refinance provides a clear business benefit and whether the existing debt meets SBA eligibility requirements.
What is considered an ineligible use of SBA loan funds?
SBA loan proceeds generally cannot be used for personal expenses, investments unrelated to the business, speculative activities, or expenses that don't support an eligible business purpose. Funds also cannot be used to reimburse owners for previous personal investments in the business unless specifically permitted under SBA program rules. Because eligibility requirements vary depending on the loan program and transaction, borrowers should review their intended use of funds with their lender before applying.
Can SBA loan funds be used for working capital?
Yes. Working capital is one of the most common and flexible uses of SBA 7(a) loan proceeds. Businesses frequently tap into working capital to cover payroll, rent, utilities, inventory purchases, marketing expenses, insurance premiums, and other day-to-day operating costs. Access to working capital may help businesses manage seasonal fluctuations, support growth, or maintain healthy cash flow during periods of expansion.
How do I prove use of proceeds when applying for an SBA loan?
Lenders typically ask borrowers to provide a detailed explanation of how the loan funds will be used. Supporting documentation may include equipment quotes, purchase agreements, contractor estimates, inventory budgets, financial projections, or a business plan outlining how the financing supports your goals. After funding, lenders may also request documentation showing that proceeds were used for their intended purpose, making accurate recordkeeping an important part of the borrowing process.
Can I use an SBA loan to buy out a business partner?
In many cases, yes. An SBA 7(a) loan may be used to finance a partner buyout or business ownership transition if the transaction meets SBA eligibility requirements and the lender determines it supports the continued success of the business. Borrowers should be prepared to provide valuation information, legal agreements, and documentation demonstrating that the ownership change is financially sound and consistent with SBA guidelines.
