In a previous JRB eBulletin I noted that because federal law prohibits the sale of marijuana, lending to a business that sells marijuana is illegal. Any business that is engaged in any activity that is illegal under federal, state, or local law is ineligible for SBA financing, There has been no change in federal regulations (13 CFR § 120.110 (h)). In fact, the prohibition was repeated in SOP 50 10 7 (page 18)  and 50 10.7.1 (also on page 18).

Previous versions of the SOP stated:

 “Applicants that are engaged in illegal activity under federal, state, or local law are not eligible. This includes Applicants who make, sell, service, distribute, or promote products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market. … Since federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.”  

 Important Clarification. Although that verbiage is not found in SOP 50 10 7 or 50 10.7.1, its absence is not an indication that SBA policy has changed: The sale of marijuana is prohibited by federal law. Businesses that derive revenue from the sale of pipes or paraphernalia or any other activity illegal under federal, state, or local law are not eligible for SBA financing.

Richard Jeffrey
Senior Associate