March 10, 2023 By Max Freedman

If you’re considering an SBA loan to fund your business, you might be wondering how exactly you can use your loan proceeds. The great news is that SBA loans cover the vast majority of purchases your business might need to make. Read on to learn more about SBA loan spending guidelines and how you may be able to use these loans to get short-term and long-term working capital.

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What you need to know about an SBA loan

An SBA loan is a government-backed loan that you obtain from a bank. In other words, the Small Business Administration (SBA) isn’t the source of your funding – that’s the bank. Instead, the SBA manages the loan program and incentivizes banks to provide working capital loans to borrowers who might otherwise lack access. There are many types of SBA loans, among which SBA 7(a) loans are generally the most common.

The SBA may guarantee 50 to 85 percent of your loan amount. This way, the bank knows it will still get most of its money back if you default on your loan. The bank typically takes on far less risk with this arrangement, which is a big deal as most banks are notoriously risk-averse.

Given the lower risk involved with SBA loans, participating banks may offer larger loan amounts than other funding sources. Lower interest rates and longer repayment terms are also near-universal with SBA loans. 

SBA loan spending guidelines also help lay out many ways in which you can use your loan proceeds. Given these loans' versatility and great terms, most experts say they’re the best funding source for any small business. Since SBA 7(a) loans are typically the most commonly sought type of SBA loan, this article will focus exclusively on them.

How can you use your SBA loan?

You may use SBA 7(a) loans for most small business purposes, including the following.

1. Working capital

Working capital is perhaps the use case most associated with SBA 7(a) loans. Positive working capital in small business typically means that you have enough assets to buy inventory, hire staff, pay your taxes, and embark on marketing campaigns. You may generally use your SBA 7(a) loans toward all these expenses.

2. Business expansion

Some of the working capital expenses you can cover with an SBA 7(a) loan – labor, marketing, inventory – are direct conduits to business expansion. This generally makes SBA 7(a) loans among the best options for business expansion loans. You may use them to explore new markets, launch new products, renovate your storefront, or buy new equipment.

3. Equipment purchases

You may use your SBA 7(a) loan to obtain new equipment or upgrade your current systems. Similarly, you may use SBA 7(a) loan proceeds to buy furniture, fixtures, materials, and supplies. 


Your interest rate, repayment term, and loan amount will likely be more favorable with an SBA 7(a) loan than with non-SBA equipment loans. That said, non-SBA equipment loans are generally still a great option if you don’t qualify for SBA loans.

4. Debt refinancing

With an SBA 7(a) loan, you may refinance your existing business debts to make your interest rates and monthly payment amounts more favorable. This strategy involves replacing one or more loans with an entirely new loan, ideally one with better rates and terms. The lower cost SBA 7(a) loan will help pay off the expensive loan, often leaving you in a better financial situation. Refinancing is typically a great way to save money, better manage cash flow,  and decrease the amount of interest paid each month. 

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What can an SBA loan not be used for?

You typically cannot use a small business loan from an SBA lender in the following ways.

1. Personal finances

Across the board, SBA loans are to be used solely for business finances. You typically cannot use your loan proceeds to cover, for example, the purchase of personal property or a long-overdue personal credit card bill.

2. Any uses within certain industries and circumstances

SBA loan usage is entirely prohibited for the below industries and circumstances.

  • Businesses that lend money to earn revenue cannot use SBA loans.
  • Landlord- or developer-owned businesses cannot use SBA loans on properties the small business owner doesn’t occupy. This rule does not apply for properties the business is leasing without the property owner profiting.
  • Companies based outside the U.S. cannot use SBA loans unless the owner is a “resident alien” of the U.S.
  • Life insurance providers, pyramid-scheme companies, businesses with at least one-third of revenue stemming from legal gambling, and speculative businesses may not use SBA loans.
  • Marketing and consumer cooperatives, as well as political or lobbying firms, may not use SBA loans.
  • Private, membership-limited businesses and clubs may not use SBA loans, unless their limits are based solely on a physical space’s capacity.
  • Any business that instructs, teaches, counsels, or indoctrinates religious beliefs may not use SBA loans.
  • Loan packagers that generate more than one-third of their annual revenue from packaging SBA loans may not use SBA loans.
  • No lender may approve SBA loans for a business in which it or an associate owns an equity interest.
  • Businesses that earn revenue from live shows “of an indecent sexual nature” cannot use SBA loans. The same is true for businesses that earn over 2.5 percent of their gross revenue through such products, services, displays, or depictions.

3. Any uses beyond those listed above

SBA 7(a) loans are to be used solely for working capital, business expansion, equipment purchases, and debt refinancing. There are additional SBA 7(a) loans specific to commercial real estate. Any use cases outside these areas are generally not allowed.

Apply for SBA loans with SmartBiz®

If your business needs fall within SBA loan spending guidelines, then you may be able to utilize SmartBiz to find the right loan for your needs. If you wind up ineligible for an SBA loan, you may also be able to pursue bank loans and custom financing through SmartBiz. Check now whether you pre-qualify* to start your journey toward the funding you need.

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