Glossary · The loan itself
Misapplication of loan proceeds
In short
This is when loan funds are used for something other than what the SBA Loan Authorization specifies. If you divert funds, it's a serious violation that can lead to loan default and personal liability.
What it means in a deal
The SBA requires strict adherence to the authorized Use of proceeds. Ensure every dollar is traceable to approved uses like working capital, equipment purchase, or debt refinancing. Any deviation, even minor, can trigger a loan default and potentially expose you to fraud allegations.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Misapplication of loan proceeds
- Can I use proceeds from selling my primary residence as part of my equity injection?
- Can I use proceeds from the sale of personal crypto assets for my equity injection?
- What are a lender's responsibilities concerning the proper use of 7(a) loan proceeds by the borrower?
- Can I use proceeds from selling personal real estate as part of my SBA 7(a) equity injection?
- How does a lender ensure compliance with the 'use of proceeds' requirements for a 7(a) loan, particularly for working capital?
- Are proceeds from personal investment sales eligible for equity injection?
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.
See which SBA lenders would fund your deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to approve a 7(a) like yours and flag what trips up approval.
Free · No documents · Usually same-day
Backed by data on 1,000+ SBA lenders and 300,000+ funded deals. Your details go only to lending partners you ask to be matched with — never sold to advertisers.