Business owners in Ohio may benefit from understanding more about how proceeds from the 7(a) loan program of the U.S Small Business Administration may be obtained and used. Entrepreneurs and owners who are interested in receiving such a loan need to be aware of any restrictions on use that may be applicable. There are several restrictions in place for these types of loans.

These loans are not to be used for any venture that is not considered to be a sound business by the SBA. These loans may not be used for repaying outstanding federal or state withholding taxes or other capital that could be in escrow or a trust. The SBA also prohibits business owners from using the loans as reimbursement to any owner, including as means to sustain business operations. The SBA prohibits anyone from using the loans to refinance debt and take on debt that would otherwise transfer directly to the owner.

The SBA loans may not be used to facilitate changes that will not benefit the business, such as a partial change of ownership. However, the 7(a) loans may be used for a variety of other purposes, such as refinancing debt under qualified conditions, establishing a new business, assisting with an expansion or acquisition, purchasing equipment, fulfilling short-term or long-term working capital needs, purchasing real estate, renovation and many other critical tasks.

People who need more information on the permitted uses of these loans or how business operations could be effected going forward might benefit from consulting a lawyer who has experience in business law matters. This type of debt financing could serve as a good source of working capital for a start-up enterprise.

Source: U.S. Small Business Administration, “Use of 7(a) Loan Proceeds“, November 10, 2014