I love getting “real world” questions from our clients! I get a chance to research some challenging issues – and importantly to assist in decision making and avoiding possible SBA denials before they happen. And by extension, I can help other lenders too. Here’s an interesting situation that came in recently.

Q: Hi Richard! We’re working with a group that wants to start a treatment center for teenage girls. I’m concerned that they intend to serve just one gender and one age group. Are they eligible for an SBA loan? Can you give me some direction please?

A: Interesting issue. You’re right to be concerned. Here’s the back-up: 13 CFR 120.110 (g) B. is very explicit. “… businesses which limit the number of memberships for reasons other than capacity” are ineligible for SBA financing, This type of discrimination is also prohibited by 13 CFR 113.3 in various paragraphs. As you know, the CFR does not mince words, so the double prohibition is significant.

Importantly, these prohibitions are in the Code of Federal Regulations. Whenever we deal with an issue, we check the latest SOP and the CFR. As a lender, you need to check both. We’ve often found that an SOP doesn’t address every topic covered by the CFR. When the CFR covers an issue, the CFR rules. However in this case, SOP 50 10 5 (J) is just as clear. If a business restricts patronage for any reason other than capacity, it is ineligible. Yet there’s some good news here. The SOP proposes scenarios where such a loan might be considered. In this case, you have two issues: Gender discrimination and age discrimination. Of course you want to avoid both. Let’s take them separately:

Gender discrimination. Businesses that market to one specific gender (the example is given of a fitness center that markets to just one gender) may be eligible if permission to use the facility is provided to more than one gender. In that case, the applicant must:

  • sign an affidavit that the business is open to more than one gender; and
  • provide evidence that the facility is open to customers regardless of gender, such as appropriate bath/locker rooms or market demographics. (SOP 50 10 5 (J) Subpart B, Chapter 2, III, A. 9., pg. 101 for 7(a) loans; Subpart C, Chapter 2 III A. 9., pg. 279 for 504 loans)

A treatment center may direct its marketing to one specific gender. But it must show that it and can accommodate customers regardless of gender and provide evidence to support that claim. In the loan application, an argument could be made that, although the facility is open to customers regardless of gender, demographics might indicate that only one gender requires the treatment to be offered.

Age discrimination. In the same way the center may market to a specific age group. But it must provide evidence that it can serve any age group. Again, demographics might indicate that only one age group requires the treatment to be offered. Yet that might be the more difficult argument.

Richard Jeffrey
JRB Associate, CDC/504 Programs