The SBA One-Third Gambling Rule: Who Is Ineligible and What to Do Instead
By MercFinancial · Published 2026-10-21
Under 13 CFR 120.110(g), a business that derives more than one-third of gross annual revenue from legal gambling is ineligible for SBA loans. How lenders measure it, who passes, who fails, and the non-SBA paths.
The SBA one-third gambling rule, at 13 CFR 120.110(g), makes any business that derives more than one-third of its gross annual revenue from legal gambling ineligible for SBA financing, and a companion provision, 120.110(h), makes any business engaged in activity that is illegal under federal, state or local law ineligible regardless of revenue. A bar with a few video gaming terminals usually passes. A casino, a card room, a route operator or a dedicated gaming venue fails, and no SBA lender can waive it.
This guide explains what the rule says, how SBA lenders measure gaming revenue against gross annual revenue, which kinds of gaming businesses pass and which fail, why passing the test does not oblige any lender to say yes, and the non-SBA capital that exists for businesses that fail. It closes with how a brokerage places a file on either side of the line.
- Under 13 CFR 120.110(g), a gaming business that derives more than one-third of gross annual revenue from legal gambling is ineligible for SBA financing.
- The one-third gambling test is applied by the SBA lender to the business's gross annual revenue, using tax returns, regulator reports and bank statements.
- A gaming business that fails the SBA one-third rule can still be financed by private real estate lenders, licensed equipment lessors, private credit and revenue-based funders.
- Passing the one-third test keeps a gaming business SBA-eligible on paper, but each SBA lender's own credit policy decides whether it will write any gaming revenue.
The one-third test is arithmetic the lender does from your regulator reports, not an estimate you get to make yourself.
What the rule says
13 CFR 120.110 is the SBA's list of businesses that cannot receive its loans. Paragraph (g) excludes businesses deriving more than one-third of gross annual revenue from legal gambling activities. Paragraph (h) excludes businesses engaged in any activity that is illegal under federal, state or local law, which is where unlicensed, contested or prohibited gaming formats fall. The two paragraphs do different work: (g) is a revenue test for lawful gambling, and (h) is an absolute bar for unlawful activity.
The rule applies to the applicant business, not to its owners' other ventures, and it is applied by the SBA lender at application and again at closing. It is a threshold, not a sliding scale: a business at or below one-third is not ineligible under (g), and a business above it is ineligible, full stop. The SBA's standard operating procedure gives lenders further guidance on how to treat particular revenue lines, and the lender's reading of that guidance is the one that counts. The broader map of who funds the industry is in gambling and gaming business loans.
How the one-third gambling test is measured
The arithmetic is gaming revenue divided by gross annual revenue, both measured as the business reports them. Three practical points decide most files.
First, the gaming figure is the business's own revenue from gambling, not the wagers placed on its premises. A bar that hosts terminals owned by a licensed route operator records its share of net terminal income, the amount left after prizes and tax that the statute or contract assigns to the location. That share is the numerator, and the regulator's monthly reports state it exactly. Lenders use those reports rather than the owner's estimate.
Second, the denominator is gross annual revenue of the whole business: food, beverage, fuel, merchandise, lottery commissions, rent and the gaming share together. A business with large non-gaming sales can host meaningful gaming activity and still sit below the line.
Third, the period matters. Lenders commonly use the most recent complete fiscal year from the tax return, cross-checked against the regulator's reports and the bank statements for the same months. A new business with no history is measured on its projections, and lenders treat a projection that lands just under one-third with skepticism. How lottery commissions and similar lines are treated follows the SBA's procedural guidance, and the lender's reading is the one that counts, so ask before assuming.
Which gaming businesses pass and which fail
The table below is how SBA lenders commonly treat the business types that ask. It is a general reading, and every file is measured on its own numbers.
| Business | Under the one-third rule | Note |
|---|---|---|
| Casino or racino | Fails (g) | Gaming is the business |
| Card room or poker club | Fails (g) | Rake and seat fees are gambling revenue |
| Route or terminal operator | Fails (g) | All revenue is its share of terminal income |
| Truck stop with a gaming room | Depends on the mix | Fuel volume usually keeps it under |
| Bar or tavern with a few terminals | Usually passes | Measured on the location's share, not wagers |
| Convenience store with lottery | Usually passes | Commissions treated per SBA guidance |
| Sweepstakes or skill-game venue | Fails (h) where contested | Legality decides before revenue does |
Businesses with gaming as a minority line are the subject of funding a business with gaming revenue, which covers how to present the mix.
Passing the test is not an approval
Eligibility under 120.110 is the floor, not the decision. Every SBA lender has its own credit policy, and many exclude any business with gaming revenue regardless of the arithmetic, because the compliance review costs more than the loan earns or because the bank's board has drawn the line there. Others will write a bar or truck stop with modest gaming revenue but will carve the gaming line out of the cash flow they count toward repayment, which lowers the loan amount.
The SBA's other requirements still apply as well: a for-profit business, size standards, owner equity, repayment ability from the whole business and the lender's collateral policy. A fuller list is in the SBA loan requirements checklist. The practical lesson is that a business near the line should be placed with lenders known to accept gaming revenue, and should present the non-gaming cash flow strongly enough to carry the loan on its own.
Illustrative example: two taverns, one line
Illustrative example: two hypothetical taverns each gross $900,000 a year. The first hosts five terminals and records $250,000 as its share of net terminal income, with $650,000 from food and beverage. Gaming is below one-third, so the business is not ineligible under (g), and an SBA lender that accepts gaming revenue can consider it, likely counting only the $650,000 toward repayment. The second tavern records $400,000 from the same five terminals and $500,000 from the bar. Gaming is above one-third, and no SBA lender can write it.
The second owner is not out of options. The building, the kitchen and bar equipment, and the non-gaming card receipts can each be financed outside the SBA, and that is the subject of the next section.
What to do if you fail the one-third rule
A business above the line is financed the way the rest of the gaming industry is financed: by non-bank funding sources whose policy allows it.
- Real estate. Private and non-bank commercial real estate lenders, and some regional banks, lend on the building, sized to appraisal and coverage from the whole business.
- Equipment. Licensed gaming equipment lessors and manufacturer programs for the devices, ordinary equipment lenders for the kitchen, bar and systems. See gaming equipment financing.
- Working capital. Revenue-based financing against non-gaming card receipts, and unsecured loans on the owner's credit, case by case.
- Term debt. Private credit for licensed operators with regulator-reported history, with the regulator's consent to whatever the lender takes.
Where MercFinancial fits
MercFinancial is a commercial funding brokerage in Houston, not a lender, and it does not decide SBA eligibility. A funding specialist runs the one-third arithmetic from the regulator reports and the tax return before anything is submitted, so a file is never sent to an SBA lender it cannot pass. For a business under the line, the specialist identifies the SBA lenders in a network of more than 160 funding sources that accept gaming revenue. For a business over it, the file goes to the private real estate, equipment, private credit and revenue-based sources whose policy allows the industry. One file, every fitting source, offers compared, and a plain answer when nothing fits. The related guides are under gambling and gaming business funding, and the programs under business funding programs.
Frequently Asked Questions
Can a bar with video gaming terminals get an SBA loan?
Usually, if the bar's share of net terminal income is one-third or less of its gross annual revenue and the SBA lender's own policy accepts gaming revenue. The lender measures the share from the regulator's reports and the tax return, not from an estimate. Many lenders count only the non-gaming cash flow toward repayment, so the bar and kitchen have to carry the loan.
How does the SBA count gambling revenue?
As the business's own revenue from legal gambling, divided by its gross annual revenue for the period. For a location hosting an operator's terminals, that is the location's share of net terminal income as the regulator reports it, not the wagers placed. Lottery commissions and similar lines are treated under the SBA's procedural guidance, and the lender's reading is the one that applies.
Is a casino eligible for an SBA loan?
No. A casino's gross annual revenue is predominantly legal gambling, so it fails the one-third test in 13 CFR 120.110(g). Card rooms and route operators fail for the same reason. The capital that exists for them is private and regional commercial real estate lending, licensed gaming equipment leasing, private credit and revenue-based financing on non-gaming receipts.
What if my business is just over one-third?
It is ineligible for SBA financing as it stands. Some owners restructure, for example by separating the gaming room into its own licensed entity where the regulator allows it, but that is a legal and regulatory question before it is a lending one, and lenders look closely at a split done to pass the test. Non-SBA sources finance the business as it is.
Does passing the one-third rule mean the bank will approve the loan?
No. Eligibility is the floor. Each SBA lender applies its own credit policy, and many decline any gaming revenue regardless of the arithmetic. Those that accept it often exclude the gaming line from the cash flow that supports the loan. The SBA's other requirements, for-profit status, size, equity and repayment ability, still apply in full.
Have the one-third arithmetic done from your regulator reports before any SBA lender sees the file. A funding specialist runs it, names the lenders that accept gaming revenue and lays out the non-SBA paths if you are over the line. Stephanie, our AI lending assistant, pre-qualifies in 2-3 minutes with a soft credit pull that won't affect your score, or book a free 30-minute call with a funding specialist at (830) 587-5022.
Get Pre-Qualified with Stephanie Book a Free 30-Minute CallMercFinancial is a commercial funding brokerage in Houston, Texas. MercFinancial is a broker, not a lender: every loan is made by a third-party funding source, every request is subject to that source's underwriting and credit approval, and loan amounts, advance rates, interest rates, terms, fees, collateral and guaranty requirements vary by funding source and borrower and are not guaranteed. Nothing here is a commitment to lend or an offer of credit, and financing is for business purposes only. Any example in this guide is hypothetical and illustrative; actual terms and outcomes vary. Businesses deriving more than one-third of gross annual revenue from legal gambling are ineligible for SBA financing under 13 CFR 120.110(g); gaming is licensed and regulated by each state, and financing availability depends on the funding source's policies. This guide is educational only and is not legal, tax, accounting or investment advice.