Determining Use of Proceeds | SmartBiz University

It’s no secret that SBA 7(a) loans are the gold standard in the small business lending industry. SBA loans have long terms, low rates and very low monthly payments. Here’s how an SBA loan can help a small businesses grow.

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Eligible Uses of Proceeds

According to the SBA Loan Chart, the eligible uses of proceeds for a standard SBA 7(a) loan are as follows:

Expansion/renovation; new construction, purchase buildings; purchase equipment, fixtures, lease-hold improvements; working capital; refinance debt for compelling reasons, inventory or starting a business

Let’s explore what these terms mean in more detail.

Working Capital

Working capital refers to the business funds that are used in day-to-day operations. To calculate, current liabilities are deducted from current assets. This amount should be positive and acts as a cushion for any expenses that come up on a daily basis.

Working capital can also be applied to a variety of other business purposes, from hiring to marketing and everything in between.


Small business owners wear many hats, but sometimes it takes a bit of help to get the job done. Hiring employees is one of the ways you can apply an SBA loan to growing your business.


Real World Example: Jill Huggett from Bridgepath Career Advisors, LLC used her SBA loan proceeds to hire new resume writers, coaches, and assistants that will help her clients find a career they love.

Equipment Purchases

Maintaining and upgrading business equipment is an important way to keep the company running smoothly. An SBA loan is a low-cost option that can help you finance equipment.


Real World Example: At Puppy Love, Inc., owners Young and Eric put their SmartBiz SBA loan to use by financing additional grooming equipment as well as freezers to hold more dog-friendly products.


Raising brand awareness is key when it comes to increasing sales and expanding operations. Marketing can come in many forms, from social media advertisements to blog syndication to direct mail campaigns.


Real World Example: The Growth CMO, a marketing firm with the mission of helping entrepreneurs scale their businesses, worked with SmartBiz to secure an SBA loan that enabled them to reach more customers. They used their low-cost funds to launch targeted digital campaigns both regionally and on a national scale.

Business Expansion

An SBA loan can help scale your company. Offering more products, conducting market research, making strategic partnerships, and upgrading locations to serve a larger customer base are all examples of business expansion.


Real World Example: Fred Wellman, CEO and founder of ScoutComms, Inc., used his low-cost funds to expand into a second location. An SBA loan through SmartBiz will give the boutique PR firm access to new markets and client relationships.

Inventory and Operational Expenses

Enlarging inventory to keep up with demand is another way you can put your SBA loan funds to use. During busy seasons or promotions, having additional funds on hand can help small businesses stay afloat.


Real World Example: For Scott Morris of Roshambo Baby, expanding his company’s inventory range was an important part of his plan to expand. SmartBiz helped open doors for Scott into national and international markets.

Find additional information about SBA working capital loans through SmartBiz here.

Debt Refinancing

By refinancing costly debt with an SBA 7(a) loan, small business owners can apply their monthly savings of up to thousands of dollars back into their businesses. The longer terms and lower rates of an SBA loan allows you to pay down the expensive financing that’s reducing business cash flow.


Real World Example: With their SBA loan, Cathy and Renee of Painting with a Twist focused on debt consolidation as their first step. “We were putting out $6,000 a month and now we’re paying $1,100 a month. It’s a significant savings. We’re staying ahead of the curve instead of just trying to keep up.”

Learn more about debt refinance through SmartBiz Loans® here.

Commercial Real Estate (CRE)

SBA 7(a) loans can also be used for purchasing or refinancing property to foster stronger business growth. Whether it be to purchase the current location or expand into a new one, borrowers can take out these SBA 7(a) loans with a term of up to 25 years.


Real World Example: Susan Rescigno of Rescigno’s Marketing Connections returned to SmartBiz after her first SBA working capital loan was funded. Our team noticed that her current CRE loan had a short term with a balloon payment due, so we were able to help her obtain a low-cost, 25-year fully amortizing SBA loan that she could use instead of refinancing her property.

Find out how SmartBiz can help with CRE loans here.

Ineligible Uses of Proceeds

The main distinction that sets eligible uses of proceeds apart from ineligible ones is that an SBA loan must be directly applied toward development, rather than as a “band-aid” or temporary solution for financial troubles.
According to the SBA, ineligible uses of funds include:

  • Refinancing personal debt
  • Payment of delinquent payroll, sales, or real estate taxes
  • Payments, distributions, or loans to an associate or owner of the business
  • Real estate purchase held primarily for sale, lease, or investment
  • Floorplan financing (primarily used by auto dealers)

Lenders may also have additional restrictions.

Before you apply for an SBA loan through SmartBiz, sign up for SmartBiz Advisor* to receive personalized recommendations that will help you strengthen your lending profile based on key criteria banks look for. This online, educational tool can be your Intelligent CFO™, free of charge.


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.