If you Owe more than $30,000 contact us for a case evaluation at (833) 428-0937
contact us for a free case evaluation at (833) 428-0937
Call us (833) 428-0937

Can I Use an SBA Loan to Pay Off Personal Debt?

Can I use an SBA loan to pay off personal debt? Read further to discover how you can and can't use your SBA loan funds.

Book a Consultation Call

Can I Use an SBA Loan to Pay Off Personal Debt?

Like many small business owners, your business exists as an extension of yourself. It is your identity and your hard work. However, you cannot use you SBA loan to pay off your personal debt, such as credit cards, mortgage or other debts.

The SBA Designates Proper Uses of Funds

Pursuant to the SBA's Standard Operating Procedures (SOP), the use of 7a loan funds is limited to the following:


  1. Permanent working capital; 
  2. Revolving working capital; 
  3. Furniture and fixtures; 
  4. Machinery and equipment; 
  5. Purchase of land as part of an eligible project; 
  6. Purchase, construction, or renovations to buildings; 
  7. Business acquisition; and 
  8. Refinancing of existing debt 

Paying your personal debts does not fit the bill of any of the approved categories.

The SBA Also Designates Improper Uses of Funds

Similarly, the SBA SOP contain a list of business loan proceeds restrictions:


  1. Payments, distributions or loans to an Associate of the Applicant , except for compensation for services actually rendered at a fair and reasonable rate; 
  2. A loan to an Applicant for the benefit of an ineligible affiliated business; 
  3. Refinancing debt owed to an SBIC or a New Markets Venture Capital Company (NMVCC); 
  4. Floorplan financing; 
  5. Investments in real or personal property acquired and held primarily for sale, lease or investment; 
  6. Payment of Delinquent Taxes; or Loan proceeds must not be used to pay past-due Federal, state, or local payroll taxes, sales taxes, or similar taxes that are required to be collected by the Applicant and held in trust on behalf of a Federal, state, or local government entity. Payment of delinquent business income taxes may be permitted if the Applicant has an approved payment arrangement with the IRS and the Applicant is current on the payments in the arrangement. 
  7. To finance the relocation of the Applicant business out of a community, if there will be a net reduction of one-third of its jobs or a substantial increase in unemployment in any area of the country. 


Notice the first category would exclude payment of your personal debts. Part of the reason for this restriction consists of the tax implication. Money used to pay your personal debts should be claimed as income and therefore income taxes paid thereon. However, if you use your SBA funds to pay your personal debts, you receive income tax free. The other reason for the restriction surrounds the primary goal of the SBA program to help small businesses and create jobs. Using loan funds for you personal debts accomplishes neither of those goals.

What Are the Ramifications If I Use SBA Funds for Personal Use?

The ramifications will cause a great deal of potential legal and financial problems. The loan could be declared in default and called immediately. You could face legal issues for fraud as well as tax issues with the IRS for failing to report income. The business loan is for the business and you should always keep that in mind.

Contact Protect Law Group Today

If you are facing an SBA loan default, contact our offices today to speak with an experienced SBA attorney. Call toll free 833-428-0937 or submit your information on our website.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

construction accident injury lawyer

Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

slip and fall attorney

Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements

truck accident injury attorney

Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001.  The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.

Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice.  The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan.  Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt.  A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments.  As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.

$430,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

$430,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral.  One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.

$375,000 SBA 504 LOAN - SBA OIC CASH SETTLEMENT

$375,000 SBA 504 LOAN - SBA OIC CASH SETTLEMENT

The client personally guaranteed an SBA 504 loan balance of $375,000.  Debt had been cross-referred to the Treasury at the time we got involved with the case.  We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.

Read more Case Results

Related Content

Read more sba debt articles