What can an SBA 7(a) loan be used for?

The framing sentence

Section 120.120 opens with a principle: "A small business must use an SBA business loan for sound business purposes." The rest is a list of permitted uses organized by which loan type allows them. That structure matters. Paragraph (a) names uses available with "any SBA loan." Paragraph (b) adds uses for 7(a) and microloan proceeds. Paragraph (c) adds one use, refinancing, for 7(a) only. Reading the paragraph letters tells you which program a use belongs to.

Paragraph (a): buildings, land and fixed assets

Six items are available for any SBA loan: (1) acquire land by purchase or lease; (2) improve a site, for example grading, streets, parking lots and landscaping, "including up to 5 percent for community improvements such as curbs and sidewalks"; (3) purchase one or more existing buildings; (4) convert, expand or renovate existing buildings; (5) construct new buildings; and (6) acquire by purchase or lease and install fixed assets. A parenthetical adds that for a 504 loan the fixed assets must have a useful life of at least 10 years and be at a fixed location, though short-term financing for equipment, furniture and furnishings may be permitted where essential to and a minor portion of the 504 project. That limit is for 504, not 7(a).

Paragraph (b): the working-capital side

What distinguishes 7(a) and microloans from the 504 program is paragraph (b): inventory, supplies, raw materials and working capital. This is where a typical 7(a) borrower spends money on the daily operations of the business rather than on a building. A parenthetical in (b)(4) covers a structure with a real estate holding company: if the Operating Company is a co-borrower with the Eligible Passive Company, part of the proceeds may be used for working capital or for purchasing other assets, including intangible assets, for the Operating Company. That is the only place in the section where intangible assets appear by name.

Paragraph (c): refinancing

"A Borrower may use 7(a) loan proceeds for refinancing certain outstanding debts." The word "certain" matters. Section 120.120 does not list which debts qualify or what conditions apply; those details come from other parts of the regulations and SBA's procedures. So the safe reading is that refinancing is allowed as a category for 7(a) loans, not that every debt can be refinanced.

Worked scenarios

A restaurant owner wants to renovate the dining room and buy a new oven: building renovation is (a)(4), and the oven is a fixed asset under (a)(6); either works with any SBA loan. A bakery needs flour, packaging and a three-month cash cushion: inventory, supplies, raw materials and working capital are all (b), so a 7(a) or microloan, not a 504. A developer wants a loan to buy an office building and lease it entirely to tenants with no occupancy by the developer: that is a passive-business question under 120.110(c), not a use-of-proceeds question. The tool above reports which paragraph a use falls under and whether it is 7(a)-only.

Notice that 120.120 does not say you can pay yourself, pay taxes, or buy a business. Those uses are neither listed nor prohibited here. A change of ownership is mentioned for Eligible Passive Companies in 120.111, which allows financing a change of ownership between existing owners. Whether other uses are allowed is a question for your lender and SBA procedures.

What the section does not say

It does not set a percentage cap on working capital, does not require collateral for particular uses, and does not describe application steps. It does not address using proceeds for personal expenses or for a business you do not own. Pair this page with the maturity rules, because the use you choose drives the longest allowed term, and with the ineligible business list, because an eligible use does not rescue an ineligible business.

Matching the use to the loan type

The practical consequence of the paragraph structure is that the use of proceeds helps decide which SBA product fits. A borrower whose entire need is a building and equipment can look at any SBA loan, including the 504 program, whose fixed-asset limits appear in paragraph (a)(6). A borrower who also needs inventory, payroll cushion or supplies is in paragraph (b) territory, which names 7(a) and microloan proceeds. A borrower who wants to replace existing debt is in paragraph (c), 7(a) only. Write your uses down in three columns, any SBA loan, 7(a) or microloan only, and 7(a) refinancing only, before you speak with a lender. If every item lands in the first column, you have more program choices. If items land in the second or third, 7(a) is the product the regulation points to.

The section also frames everything with the phrase "sound business purposes." It is a standard the lender and SBA apply when reviewing the request, and it does not come with a definition in this section. A plan that is clear about what each dollar buys is the easiest way to meet it.

Sources

• 13 CFR § 120.120, What are eligible uses of proceeds?. Read November 2, 2026.
• 13 CFR § 120.111, What conditions must an Eligible Passive Company satisfy?. Read November 2, 2026.

Text read: Electronic Code of Federal Regulations, Title 13, Part 120, current through the eCFR issue date of October 29, 2026. Dollar figures and percentages on this page are the ones printed in those sections as of that date; SBA can amend the rule and publishes loan-program procedures (such as SOP 50 10) that add detail this page does not cover. Confirm current terms with an SBA-approved lender or at sba.gov. This page summarizes the regulation and does not replace it.