Glossary · Reading the business
Pyramid Sales(Pyramid scheme)
In short
A fraudulent business model where participants profit primarily from recruiting new members, not from selling legitimate products or services. It's an illegal and unsustainable scheme.
What it means in a deal
The SBA explicitly prohibits lending to businesses involved in pyramid sales or multi-level marketing where income is primarily derived from recruitment. During due diligence, rigorously vet the business model to ensure it's based on genuine sales and not a pyramid scheme, which would make it ineligible for an SBA loan.
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 Pyramid Sales
- How does the SBA evaluate the eligibility of an applicant business involved in multi-level marketing or pyramid sales schemes?
- Are proceeds from personal investment sales eligible for equity injection?
- How does a lender evaluate the market value of collateral when there are limited comparable sales?
- Can I get an SBA 7(a) loan if my business is a startup with no sales yet?
- How does a lender ensure timely and accurate reporting of 7(a) loan sales on the secondary market to the SBA?
- What are the SBA's reporting requirements for 7(a) lenders regarding sales of guaranteed loan portions on the secondary market?
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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