An eligible small business is defined by The Small Business Act as one that is independently owned and operated and not dominant in its field. The Act also states that the definition of a small business will vary in order to reflect differences in industries. Businesses that are not eligible for SBA financial support include charitable, religious and certain other nonprofit institutions. Other businesses which are ineligible include those engaged in real estate investment, speculative activities, lending functions, or pyramid sales plans. Businesses involved in gambling cannot qualify unless the business obtains less than one-third of its annual gross income from the sale of official state lottery tickets under a state license or is engaged in legal gambling activities licensed and supervised by a state authority.
Any business involved in illegal activities is also ineligible.
Interest rates for SBA loans may be fixed or variable and are negotiated between the borrower and the lender. The rates are subject to SBA maximums that are tied to the Prime Rate. The SBA charges the lender a guaranty fee and a servicing fee for each approved loan. Once the lender has paid the fee, it can be passed on to the borrower. The fee charges are determined by the loan guaranty amount.