Glossary · Reading the business
Managerial discretion
In short
This refers to the freedom a business owner or manager has to make independent decisions about how the business operates. The SBA requires this for a business to be considered an active enterprise.
What it means in a deal
For a 7(a) loan, the business must not be subject to undue control by another entity, especially if that entity is an ineligible business or a passive investor. Your lender will confirm that you, as the new owner, will have the necessary managerial discretion to run the business independently, ensuring it's not merely a pass-through or a captive operation.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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