Glossary · The loan itself
Pyramidal distribution system
In short
This is a business structure where participants primarily earn money by recruiting new members, rather than selling actual products or services. These businesses are ineligible for SBA loans.
What it means in a deal
The SBA explicitly prohibits lending to businesses primarily engaged in pyramidal distribution, multi-level marketing (MLM) where recruitment is the primary income driver, or any scheme deemed illegal. If the target business operates with an MLM component, you need to scrutinize its revenue model to ensure it's not a prohibited pyramidal system. Look for genuine product sales.
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 Pyramidal distribution system
- Can life insurance be used to ensure fair distribution of assets among non-active heirs in a family business?
- What specific requirements apply to a franchise system for SBA 7(a) loan eligibility?
- How does the SBA evaluate an emerging franchise system for 7(a) loan eligibility?
- If I am buying a franchise, does the SBA need to approve the franchise system?
- How do I check if a specific franchise system is eligible for SBA 7(a) financing?
- What if the business I'm buying has poor financial records or no formal accounting system?
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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