SBA Hot Topic Tuesday: Clarification of the Ineligibility of Certain Passive Business Models

October 14, 2014

By Bob Coleman
Editor, Coleman Report

By Bob Coleman
Editor, Coleman Report

SOPInformationNotice5000-1322SBA has clarified certain passive business models that are inegilible.

Says the notice,

The Agency defines certain personal services businesses with the following descriptions as eligible in SBA’s Standard Operating Procedure (SOP) 50 10 5(G):

“Businesses such as barber shops, hair salons, nail salons, and similar types of businesses are eligible, regardless of whether they have employees or contract with individuals to provide the services. . . . ”

Agency regulations define certain types of businesses as ineligible for SBA financial assistance including the following:

“Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies under 120.111).” (13 CFR 120.110(c))

Certain franchised “salons suites” business models recently brought to SBA’s attention are structured for the franchisee to lease most or all of the space acquired and/or renovated with loan proceeds to third party tenants. This “salons suites” business model generates income by renting space to accommodate independent businesses that provide the personal services.

Read SBA SOP Information Notice 5000-1322