SBA Loans “Exempt” Status

A research report on the actual situation behind businesses whose SBA Loan Status are deemed ‘Exempt’


            In an SBA loan study previously conducted by Vetted Biz, it was found that 26% of 7(a) loans approved for franchises were marked as “Exempt”. The high percentage of businesses whose loan status had been exempt from disclosure, raised the question of what exactly qualified a business to invoke this exemption in the first place. By looking at two different branches of study that seek to better understand what additional loan statuses other than the ones previously disclosed, “Exempt” could be referring to; and what connection this “exempt” status has with a business’ eventual activity or inactivity; this research attempts to draw recurring patterns amongst both branches that provide an answer to the question posed above. It argues that loan’s whose status has been marked as “exempt” are those tied to businesses who have an outstanding loan where interest and principal payments are being made on time. Also, “exempt” status business reflect business currently in-litigation or even filing for bankruptcy, of which disclosure could bring a significant competitive disadvantage to the business’ continued financial and commercial performance. The report uses an analysis of SBA’s internal documents, as well as an independent study carried out on the status of businesses with “exempt” loan status to evaluate the strength of this argument. This study aims in aiding future analysis of SBA loans in establishing a more accurate determination on the number of businesses with SBA loans that have been successful in their ventures.


  • Introduction 
  • “Exempt” loans Means Active Businesses
  • “Exempt” Loan Status’ and a Businesses’ Activity Status on Florida’s Division of Corporations  
  • The Future of Exempt Loans and the Food Marketing Institute v. Argus Leader Media Supreme Court Case 
  • Conclusion
  • Endnotes 


The starting point for the research on what exactly an SBA’s “Exempt” loan status indicated, was the definition provided by the Data Dictionary found in the SBA’s website. The dictionary – which explained a number of terms found in the documents disclosed by the SBA regarding loans within the 7a and 504 programs – indicated that an “Exempt” loan status referred to: “The status of loans that have been disbursed but have not been cancelled, paid in full, or charged off and are exempt from disclosure under Freedom of Information Act (FOIA) Exemption 4[i]”. In other words, loans considered exempt, were those whose status was protected by FOIA’s Exemption 4, which is specifically intended to protect “submitters who are required to furnish commercial or financial information to the government by safeguarding them from the competitive disadvantages that could result from disclosure.”[ii]

Based on these two initial definitions, the research on an SBA’s “Exempt” loan status was divided into three different branches:

  • A study additional loan statuses other than the ones previously disclosed, that the FOIA Exemption 4 could be referring to.
  • A research comparison of 100 companies whose SBA loan status was listed as “exempt” and what their status on Florida’s Division of Corporations Website “Sunbiz”
  • Examination of the recent Supreme Court Case “Food Marketing Institute v. Argus Leader Media, No. 18-481”[iii] which modified the application requirements necessary in order to qualify for an FOIA Exemption. Although this third branch cannot necessarily draw any answers to this research at the moment due to its recent origination, it should nevertheless be considered as an additional research path to be pursued in future studies on the subject.

Although these three studies generated only preliminary findings, and further research will be necessary to fully support any assertions – it was inferred from their findings that SBA loans with an “exempt” status, refers to loans awarded to companies that find themselves in an active position where the loan hasn’t necessarily been defaulted yet to be considered “Charged-off,” but also has not been paid in full at the moment. While it safe to assume that exempt loans are likely those that remain outstanding however in good standing nevertheless, disclosure of these additional statuses, could, in some cases, bring significant harm to the company’s own competitive advantage – particularly if it finds itself “in-litigation” or filing for bankruptcy, hence why these statuses become exempt from being exposed. The sections below will address each branch of study in greater depth, showing how them all together build a compelling case towards the assertion made above.

Where ‘Outstanding’ Means ‘In Good Standing’

The first branch of this research that indicated exempt loans were those associated with companies who found themselves in active, positions that if disclosed could potentially harm their own competitive advantage, conducted a deep dive on a number of SBA internal documents. In the SBA’s Standard Operating Procedure 50 50 4, Chapter 13, an open guideline is provided to SBA employees on how to proceed with the disclosure of loan information. Here, a particular detail that supports this research’s findings was found in Section 4 titled “What Must You Determine if You Receive a Request for Information Contained in a Loan File?” In this case, subsection “E” refers to the existence of an “in litigation” status, a loan can find itself in, where it is stated that “if a loan is ‘in litigation status,’ you [the employee] must consult with the SBA attorney assigned to the case before you [the employee] disclose any information about the loan to any party.”[i]

This specific section indicates the existence of an additional status not previously disclosed in any of the documentations made available through the Freedom of Information Act (FOIA). Additionally, the fact that a business considered to be “in-litigation” is most directly tied to SBA loan liquidation processes[ii],  leads to the logical conclusion that this specific status is one that would essentially fall under FOIA’s Exemption 4 protection, which aims to secure businesses or individuals against the disclosure of information that might leave them at a competitive commercial or financial disadvantage.

Another internal document of the SBA, this one SOP 40 03 3, shows in its Chapter 6, Section 1 that “if a requested document contains both exempt and nonexempt information, you [the employee] must delete the exempt portions and disclose the remainder”[iii] – thus indicating, that the deleted portion of the information will likely be marked off as “Exempt.” As for why only a loan status but not the rest of the information pertaining to the loan is marked off as exempt, one might consider that this is particularly due to the policy set forth by SBA SOP 50 50 4, Chapter 13, Section 2 which lists that the names of all SBA Borrowers, the original amount of the loan, the type of loan and mailing address of a borrower amongst others,  should be generally available to any requestor under the FOIA;  while the status of a particular loan (with the exception of paid in full or charged off), shouldn’t.[iv]

Although the evidence found above only allows for an initial suggestion of the definition behind an “exempt” loan, it nevertheless can be said to indicate that exempt loans are those under a status that has not been paid in full or charged off and instead remains in an “active” position. Disclosing loans that are being paid on time, while maintaining those in-litigation or filing for bankruptcy “exempt” would continue to bring a competitive disadvantage to these businesses because all one would need to do is cross reference those marked as “exempt” as the ones in a troubling position. Hence, the next logical step would be to exempt from disclosure any business whose status is still “active” in order to protect them on the basis of FOIA’s Exemption 4.

Further research in this specific branch would involve doing a further analysis of the company’s whose loan status are marked as exempt in order to determine whether any litigation or bankruptcy has recently been associated with the company, or even if there is any indicator that they are still paying off their SBA loans. This particular study would allow for confirmation of the initial suspicions raised by this research, which indicate that an exempt loan status refers to those who remain in an active situation such as paying off the loans, “in-litigation,” or filing for bankruptcy. The following section of this study, will then take this research one step forward in determining whether loans marked as exempt are mainly those that remain in good standing, currently paying off their loans on time; or instead, are those that currently find themselves in more troubling positions such as “in-litigation” or filing for bankruptcy.

“Exempt” Loan Status’ and a Businesses’ Activity Status on Florida’s Division of Corporations 

As was mentioned earlier in this report, this second branch of research refers to an independent study carried out by myself the Vetted Biz research team cross referenced 100 businesses whose loan status was marked as “Exempt” with their status on Florida’s Division of Corporations Website “Sunbiz” (, in order to test whether there was any correlation between a business’s exempt status and their activity, or inactivity, on Sunbiz.

The data used for this portion of the research was taken from the FOIA SBA 7(a) loan status reports provided yearly by the SBA website. In order to make this test as fair as possible, only businesses registered in the state of Florida were selected, out of which all 100 of them were registered in between the years of 2010-2019. An additional control group was tested, to include only businesses registered in Florida in between the years of 2010 – 2019 who instead had their status marked as “paid in full.” 

The hypothesis tested by this study is that most businesses whose loans were classified as exempt are still “active” on their loan status, and particularly, still paying off their loan status while remaining in good standing. That said, if the proportion of “exempt” businesses marked as “ACTIVE” was larger than the proportion of “paid in full” businesses marked as “ACTIVE”, then a tentative correlation would be established in between their exempt status and the businesses “active” status seeing it would show that most of the businesses under
“Exempt” remain open as the loan is still active.  Otherwise, if most “exempt” loan businesses were marked as “INACTIVE” on Sunbiz in comparison to “paid in full businesses”, then one would determine that instead, “exempt” loan businesses were ones referring to businesses who found themselves in troubling situations such as “in-litigation” or filing for bankruptcy.

As shown by Chart’s A and B included below, it was found that a tentative correlation does indeed exist between businesses with loans marked as “Exempt” and their continued activity. Out of the 100 businesses tested, 53% of them were deemed “ACTIVE” on Sunbiz, a number slightly larger than the status of loans paid in full marked “ACTIVE” on Sunbiz (50%).

Additionally, despite the slight difference of 3% in between the “ACTIVE” status of exempt loans versus those paid-in-full, this correlation is strengthened given the number of businesses with loans paid-in-full that were “REINSTATED” (20%) compared to those with exempt loans (14%). The numbers of “REINSTATED” businesses with paid-in-full loans, shows that most of the businesses currently active had been administratively dissolved at some point. That being said, the fact that a lower number of businesses with exempt loans were reinstated also indicates that this is likely due to the fact that most of them are currently active and still find themselves likely paying off their loans in a timely manner, rather than “in-litigation” or filing for bankruptcy, which would likely have been implied by a larger number of businesses marked as “REINSTATED” .

SBA Sunbiz Exempt Loans

Chart A, % of Businesses with “Exempt” Loans that are ACTIVE, INACTIVE or REINSTATED on Sunbiz

SBA Paid in Full SunBiz

Chart B, % of Businesses with “Paid in Full” loans that are ACTIVE, INACTIVE or REINSTATED on Sunbiz

A future version of this study should include a bigger pool of businesses to be tested in order to attain greater accuracy, and more certainty of the existing correlation. Nevertheless, regardless of the limitations accompanying this initial study, the implications drawn from it further support the initial hypothesis proposed by this study that businesses with loans marked as “Exempt” are those whose loan status is still active and that in most cases, find themselves in a good standing with the SBA.

The Future of Exempt Loans and the Food Marketing Institute v. Argus Leader Media Supreme Court Case


            The final branch of this research particularly looked into the Supreme Court case Food Marketing Institute v. Argus Leader Media, which loosened the requirements necessary for a business or individual to invoke FOIA Exemption 4. In this particular case, the Supreme Court held that Exemption 4 does not require “a showing that government release of private submitted data will likely cause substantial competitive harm to the submitter in order to justify withholding it from FOIA responses.”[i] What this therefore means, is that the ruling by the Supreme Court essentially facilitated a business’ invocation of FOIA Exemption 4, thus allowing it to do so simply by proving that some harm – regardless of its size – might actually arise from this disclosure.[ii]


            In the particular matter regarding SBA “Exempt” Loans, one can make a direct tie to this case, given the fact that the loosening of restrictions that accompany the invocation of FOIA Exemption 4 might in turn mean that cases with smaller issues affecting their SBA Loan status might begin applying for disclosure exemptions in the future. Although this case is extremely recent given that it was only passed by the Supreme Court in June 2019, a further study in September 2020, when the FOIA Annual report on SBA loans comes out, should be carried out in order to investigate whether this ruling has affected in any way the number of businesses applying for SBA loan status exemptions. Based on this study’s findings, the prediction is that given the requirement by the SBA that every business whose status information will be disclosed by the FOIA must receive a notice of pre-disclosure to which they can appeal[iii], this loosening of the FOIA Exemption 4 invocation requirements will likely lead to a rise in the number of businesses whose loan status is classified as exempt in the coming years.


As the first initial two branches of research outlined in this report show, there is a strong inclination to assert that “exempt” loan statuses are those awarded to businesses who currently find themselves in an “active” position that in most cases means  paying off their loans on time, while in others refers to business that are either “in-litigation or filing for bankruptcy,” of which disclosure by the FOIA would bring a significant competitive disadvantage to their future performance. While the first branch of this study indicated the existence of additional loan statuses other than those already previously disclosed, the second branch suggested an existing correlation between this “exempt” status and a business’ continued positive activity. The third branch of this research implies a potential change in the meaning behind “exempt” loan status as requirements for an FOIA Exemption 4 invocation have recently been loosened following a Supreme Court decision.

As mentioned earlier in this report, a number of limitations were found in all three branches of this study. Future studies in the first two branches should involve conducting an investigation on the businesses whose loans status are marked as “exempt” for any recent litigation or bankruptcy filing, as well as running the test produced by the second branch of this study once again only this time with a bigger pool of companies being tested. The third branch investigated in this initial research, should be included in future studies at which point one will be able to begin seeing the effects of this recent Supreme Court ruling on the number of loan statuses marked as “exempt.”

Nevertheless, despite the limitations found in this initial study, there is consistent evidence that suggests not only the existence of additional loan statuses other than those previously disclosed by the SBA, but also their correlation to businesses who currently find themselves in “active” positions, such as either paying off their loans and remaining in good status, or in-litigation or filing for bankruptcy, of which disclosure could cause significant harm to their future commercial and financial performance. The conclusion brought by this study in turn, can likely contribute towards aiding banks in underwriting small business loans based on historical data previously made available, while also supporting entrepreneurs to start businesses in industries and states that have the highest probability of success. 


[1] 2019. “SBA 7(a) & 504 Loan Data Dictionary.”

[1] Freedom of Information Act Guide, 2004 Edition: Exemption 4.

[1] Coffin, Shannen W., Paul R. Hurst and Caitlin Conroy. 2019. “Supreme Court Modifies Application of FOIA Exemption 4.” Steptoe.

[1] 2004. “Standard Operating Procedure 40 03 2.” Small Business Administration.

[1] Zarnikow, Eric. R. 2010. “Standard Operating Procedure 50 51 3.”  Small Business Administration.

[1] 2004. “Standard Operating Procedure 40 03 2.” Small Business Administration.

[1] 1999. “Standard Operating Procedure 50 50 4B.” Small Business Administration.

[1] Coffin, Shannen W., Paul R. Hurst and Caitlin Conroy. 2019. “Supreme Court Modifies Application of FOIA Exemption 4.” Steptoe.

[1]  Claxton, Haley. 2019. “SCOTUS Rules Proprietary Business Information Shielded from FOIA Disclosure.” SmallGovCon.

[1] 2004. “Standard Operating Procedure 40 03 3.” Small Business Administration.

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