5 Surprising Ways Business Owners Are Using SBA Loans

When many business owners hear about Small Business Administration (SBA) loans, they often think about major purchases, such as buying another piece of commercial real estate or expanding their facility into a larger space. However, the SBA program is designed to fund a wide variety of needs, and business owners need to understand just how useful these loans may be.

For example, SBA 7(a) loans may be used for working capital, equipment, real estate, qualifying debt refinancing, changes of ownership, and multiple-purpose loans. The program also supports AI-related expenses and other technology investments. That flexibility means an SBA loan doesn't necessarily have to fund one obvious purchase. Depending on the business and its eligibility, it may be part of a larger strategy for managing cash flow, pursuing growth, or positioning the company for its next stage.

1. Buying an existing business instead of starting from scratch

There are multiple paths to owning your own business. While many people associate business ownership with building a company from the ground up, SBA loans may also make it possible for a prospective business owner to purchase an existing company. In many cases, entrepreneurs may choose to purchase a business that already has a facility, a customer base, and equipment.

An SBA 7(a) loan may also be used for complete or partial changes of ownership, making it a potential financing option for qualified buyers acquiring an existing business. This may give an entrepreneur a path into business ownership that looks very different from building a company from zero.

2. Taking on a major contract before the revenue arrives

Landing a major customer or large contract is usually a major milestone for small businesses. However, there is often a delay between when that new customer signs a contract with your company and when you start reaping the financial benefits of earning their business. This gap in time may place significant strain on your cash flow, and an SBA loan may be the perfect solution.

The SBA's 7(a) Working Capital Pilot is designed to provide monitored lines of credit for growing businesses, and it may support companies that want to fulfill large contracts or projects. It may also allow eligible businesses to borrow against accounts receivable or inventory.

This is an important feature because it means that businesses aren’t necessarily borrowing money due to financial trouble. Instead, they’re trying to bridge a gap between when orders are placed and when they turn into profits. For a business with the financial history and operational capacity to support the opportunity, access to working capital may make it possible to pursue contracts that might otherwise be difficult to accept.

3. Refinancing existing business debt

On the surface, refinancing doesn’t seem like a growth strategy, but by restructuring debt, you may be able to improve cash flow and give your company more room to invest in strategic growth initiatives. SBA 7(a) loans may be used to refinance current business debt when the refinancing meets applicable program requirements. A business might explore refinancing when its existing debt no longer fits its financial needs or when restructuring could improve cash-flow management.

The benefits aren’t about making debt disappear. Instead, changing the financing structure may alter the business's monthly obligations, interest costs, repayment schedule, or other terms. If refinancing improves cash flow, the business may have more room for inventory, hiring, equipment, marketing, reserves, or other priorities.

4. Investing in AI and other new technology

Advances in technology have impacted virtually every industry, so investing in modern technology is typically a strategic part of running a company. Artificial intelligence, automation, software, equipment, and other technology may help a company improve productivity, serve customers more efficiently, or increase capacity.

Under current SBA 7(a) guidelines, business owners may use these loans for the purchase and installation of machinery and equipment, including AI-related expenses. That is particularly relevant for businesses considering technology investments that may require more capital than they want to take directly from their operating cash.

5. Combining several business needs into one financing plan

Growth opportunities and other unexpected business expenses don’t always present themselves in isolation. With that in mind, business owners may need to figure out how to fund multiple business needs. The SBA allows 7(a) loans for multiple purposes, including eligible combinations of working capital, equipment, real estate, and other qualifying uses.

This option is especially helpful for small-business owners who are taking on multiple costly growth initiatives. For example, if your company is moving into a larger space, you may need to improve the property, buy new equipment, order additional inventory, and hire new staff members.

Choosing the right SBA loan for the job

The Small Business Administration doesn’t provide a single type of loan for every business need. Instead, the agency offers federal backing for a variety of loan products. The 7(a) program is the SBA's primary business loan program and may support a broad range of uses, while the 7(a) Working Capital Pilot is designed specifically around working-capital needs. The CDC/504 program is more focused on major fixed assets such as real estate and long-term machinery and equipment.

Knowing which type of loan you need matters because it helps to streamline the application and underwriting process. SBA loans generally require detailed plans about how a business owner plans to use the funds, and choosing the right loan type is part of that process.

Your lender should serve as a valuable source of information during this part of the process. They may be able to help you choose the best loan option for your current needs and long-term goals.

Think beyond the most obvious use of business financing

Business owners don’t always need more money because they want to buy a new facility or expand their current location. They don’t look for loans only because they’re facing excessive strain on their cash flow. Sometimes, the motivation for obtaining outside funds is based on growth opportunities that the business doesn’t have enough cash on hand to support.

Perhaps the most important part is starting with the business objective rather than the loan itself. Once an owner understands what the capital needs to accomplish, it becomes easier to evaluate the available financing options, the potential return, and the risks involved.

If you think that an SBA loan may be right for your business, Centrust Bank® may be able to help.

FAQs

What can you use an SBA loan for?

SBA 7(a) loans may be used for a range of eligible business purposes, including working capital, real estate and building improvements, machinery and equipment, furniture, fixtures and supplies, changes of ownership, and refinancing existing business debt. They may also be structured as multiple-purpose loans combining eligible uses.

What are some less common uses for an SBA loan?

Less obvious uses may include financing the purchase of an existing business, supporting working capital needed to fulfill a major contract, refinancing qualifying business debt, funding AI-related technology expenses, or combining several eligible business needs into one financing plan.

Can an SBA loan be used to buy an existing business?

Yes. SBA 7(a) loans may be used for complete or partial changes of ownership, which may include acquiring an existing business when the transaction and borrower meet applicable SBA and lender requirements.

Can an SBA loan be used to refinance business debt?

Yes. SBA 7(a) loans may be used to refinance current business debt when the debt and refinancing arrangement meet applicable SBA requirements. The potential benefits and costs — including the new interest rate, repayment period, fees, and total cost of financing — should be evaluated carefully.

Can an SBA loan be used for working capital?

Yes. Working capital is an eligible use for SBA 7(a) financing. The SBA also offers the 7(a) Working Capital Pilot, which provides monitored lines of credit designed to support eligible businesses with working-capital needs, including fulfilling large contracts and projects.

Can an SBA loan be used to buy equipment or improve a business property?

Yes. SBA 7(a) loans may be used to purchase and install machinery and equipment and to acquire, refinance, or improve real estate and buildings. The CDC/504 program may also provide financing for major fixed assets such as real estate and long-term machinery and equipment.