SBA rules · SOP 50 10 8.1

Can an SBA loan pay for inventory?

Yes, 7(a) loan proceeds may be used to purchase and finance inventory, while 504 loan proceeds generally cannot be used for inventory except under 504 Debt Refinance without Expansion as an Eligible Business Expense.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) Loan Program: Loan proceeds under the 7(a) program may be used for inventory, supplies, and raw materials including work-in-progress. Specialized 7(a) facilities also specifically finance seasonal inventory buildups or export-related inventory.
504 Loan Program: The 504 program is restricted to financing eligible long-term fixed assets and cannot be used to finance non-fixed assets such as inventory in standard transactions or changes of ownership.
504 Debt Refinance exception: Under 504 Debt Refinance without Expansion, proceeds may be used for Eligible Business Expenses, which are operating expenses such as inventory that were incurred but unpaid prior to the application date or that will become due within 18 months after application.

The source

What the SOP says

“For 7(a) only, Borrower may also use loan proceeds for: Inventory; Supplies; Raw materials (including work-in-progress);

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > For 7(a) only, Borrower may also use loan proceeds for: (lines 783-791)✓ Verified

“This program can be used to finance fixed assets for eligible small businesses.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Purpose of the 504 Loan Program (lines 3049-3051)✓ Verified

“The 504 Project finances only the costs associated with eligible long-term fixed assets; the acquisition of any other assets such as receivables or goodwill is not an eligible use of 504 loan proceeds or Third Party Loan proceeds and must be financed by other means, which may include a 7(a) loan;

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Change of Ownership (lines 3342-3353)✓ Verified

“Are limited to the “Operating Expenses” which are expenses of the business that were incurred but not paid prior to the date of the 504 application or that will become due for payment within 18 months after the date of application. Examples include salaries, rent, utilities, inventory, and other expenses of the business that are not capital expenditures.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > May include debt subject to a federal guarantee under these conditions: (lines 3219-3220)✓ Verified

Have a deal in mind?

Tell us about it and we will tell you how these rules apply, and which lenders finance deals like yours.

See if your deal qualifies →Broker or lender? Ask the SOP your own question