Glossary · Reading the business
Passive Income
In short
Passive income is money earned from an enterprise in which one is not actively involved, such as rental properties or investments. The SBA has rules against funding businesses that primarily generate passive income.
What it means in a deal
The SBA 7(a) loan program is designed to support operating businesses that create jobs and contribute to the economy, not for passive investments. If the target business generates a significant portion of its income passively, it might be ineligible for an SBA loan. Ensure the business you're buying is truly an active operating business.
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
Common questions about Passive Income
- What if the acquired business primarily generates revenue from passive rental income?
- What constitutes "passive income" disqualifying a business from 7(a) loan eligibility?
- Do businesses that primarily generate passive income qualify for an SBA 7(a) loan?
- How does the SBA define an 'ineligible business' for 7(a) loan purposes regarding passive income?
- What is the maximum percentage of passive income a business can generate to remain 7(a) eligible?
- Can a business primarily generating passive income from non-owner-occupied commercial real estate rentals be 7(a) eligible?
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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