Glossary · People and paperwork
Passive ownership
In short
This means you own part of a business but aren't actively involved in its daily operations or management. The SBA has specific rules about who can be a passive owner in a 7(a) deal.
What it means in a deal
For an SBA loan, all owners with 20% or more equity must personally guarantee the loan, even if they're passive. If you're buying a business with partners who won't be active, ensure they understand their guaranty obligations. The SBA generally wants active management for 7(a) businesses.
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 Passive ownership
- What if the acquired business primarily generates revenue from passive rental income?
- What constitutes "passive income" disqualifying a business from 7(a) loan eligibility?
- Can the personal guaranty be limited for certain passive investors or minority owners?
- Do businesses that primarily generate passive income qualify for an SBA 7(a) loan?
- Can an SBA 7(a) loan be used to buy stock or passive investments?
- Will acquiring a business in a restricted industry (e.g., gambling, passive investing) kill approval?
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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