SBA rules · SOP 50 10 8.1
Can an SBA loan pay for a non-compete agreement?
Yes under the 7(a) loan program, but no under the 504 loan program.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- 7(a) Program: A 7(a) loan may be used to finance a change of ownership that includes intangible assets, specifically including agreements not to compete, provided the applicable financial due diligence requirements are met.
- Maturity Limit: Any financing of intangible assets under a 7(a) loan must not exceed a maturity term of 10 years.
- 504 Program: Intangible assets cannot be financed with 504 proceeds because a 504 project may only finance eligible long-term fixed assets, requiring any other assets to be financed by other means such as a 7(a) loan.
The source
What the SOP says
“A 7(a) loan may be used to finance a change of ownership that includes intangible assets (including, but not limited to, goodwill, client/customer lists, patents, copyrights, trademarks, intellectual property, and agreements not to compete) as long as the financial due diligence requirements set forth in Paragraph C.1 of this Appendix are met.
“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;
“Working capital or inventory loans and the financing of intangible assets (including goodwill) must not exceed 10 years.
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.