SBA loan collateral: questions and answers

All 19 answers on SBA loan collateral

Each entry gives the short answer. Open it for the full explanation and its sources.

Can I get an SBA loan with no collateral?

Yes, at smaller sizes. SBA requires no collateral on 7(a) Small, SBA Express, Export Express or CAPLines loans of $50,000 or less. Above that, a loan request must not be declined solely because collateral is inadequate. Source: SOP 50 10 8.1, App. 19.

What collateral does an SBA loan require at each loan size?

None at $50,000 or less on 7(a) Small and SBA Express loans. Above that, the rules depend on the program. Standard 7(a) loans of more than $350,000 must be fully secured as SBA defines it. Source: SOP 50 10 8.1, App. 19, Para. B.

Does an SBA Express loan require collateral?

Not at $50,000 or less. Above that, up to $500,000, the lender may use its own collateral policies for similar non-SBA loans. Source: SOP 50 10 8.1, App. 19, Para. B.3.

What collateral does a 7(a) Small loan require?

None at $50,000 or less. Above that, expect a first lien on what the loan buys. If half or more of proceeds are working capital, expect liens on all fixed assets too. Source: SOP 50 10 8.1, App. 19, Para. B.2.

What does fully secured mean on an SBA 7(a) loan?

A Standard 7(a) loan is fully secured when liens on all available fixed assets reach the loan amount at adjusted values. Source: SOP 50 10 8.1, App. 19, Para. B.1.

How do SBA lenders value collateral on a 7(a) loan?

At capped values. New equipment counts at no more than 75% of price. Used equipment counts at 50% of Net Book Value, or 80% with an appraisal. Improved real estate counts at 85% of market value. Source: SOP 50 10 8.1, App. 19, Para. B.1.

Must SBA lenders take receivables and inventory as collateral?

On a Standard 7(a) loan it is the lender's choice, and those assets count at no more than 10% of book value. On a loan to buy a business, the lender must take them. Source: SOP 50 10 8.1, App. 19, Para. B.1; App. 15, Para. C.3.

Will an SBA lender take a lien on my house?

On a Standard 7(a) loan with a collateral shortfall, yes, unless your equity is less than 25% of fair market value. On 7(a) Small and SBA Express loans it is generally the lender's choice. Source: SOP 50 10 8.1, App. 19, Paras. A.1 and B.1-B.3.

How much home equity triggers a lien on an SBA loan?

A lender is not required to take a lien when equity is less than 25% of fair market value. At or above that level, the equity is available if the loan's rules call for it. Source: SOP 50 10 8.1, App. 19, Para. A.1, Personal Real Estate.

Can a lien on my home be limited to part of the SBA loan?

Yes. A required or elected lien on personal real estate may be limited to the collateral shortfall or 150% of the equity in the property. Source: SOP 50 10 8.1, App. 19, Para. A.1, Personal Real Estate.

Can I put my house in my spouse's name before an SBA loan?

Doing so within 6 months of applying does not help. Real estate an owner transfers to a non-owning spouse or minor children in that window stays available as collateral. Source: SOP 50 10 8.1, App. 19, Para. B.1; App. 15, Para. C.3.d.

Does an SBA lender have to take a lien on my vehicles?

Not if the vehicle already has a lien or is worth $20,000 or less when the SBA loan number is assigned. Source: SOP 50 10 8.1, App. 19, Para. A.1, Vehicles.

What is piggyback financing, and can an SBA loan be part of it?

Piggyback financing pairs loans for the same purpose, with the SBA loan in a junior or no lien position on the other loan's collateral. A 7(a) loan must not use it. Source: SOP 50 10 8.1, App. 19, Para. A.1.

What collateral does an SBA loan to buy a business require?

The loan must meet Appendix 15's fully secured test at discounted values, and the lender must take receivables and inventory. A shortfall brings in available equity in personal real estate. Source: SOP 50 10 8.1, App. 15, Para. C.3.d.

Can a line of credit sit alongside an SBA acquisition loan?

Yes. A conventional or government-guaranteed line can sit beside the 7(a) term loan. If it needs a first lien on the acquired receivables and inventory, 20% to 50% of day-one availability must fund part of the purchase. Source: SOP 50 10 8.1, App. 15, Para. C.3.d.

What collateral does an SBA 504 loan require?

The Certified Development Company usually takes a second lien on the project property. Additional collateral is sometimes required, and available personal assets must secure the guaranty if business assets fall short. Source: 13 CFR § 120.934; SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.2.a.

Does an SBA loan require life insurance?

Sometimes. On Standard 7(a), CAPLines and certain other loans that are not fully secured, it is required in the amount of the shortfall. That covers sole proprietors, single member LLCs and businesses dependent on one owner. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. C.4.

Can I use a life insurance policy I already own for an SBA loan?

Yes. SBA lenders may accept the pledge of an existing policy, through a collateral assignment acknowledged by the insurer's home office. Credit life or whole life should not be required. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. C.4.

Does an SBA loan require hazard insurance?

Yes, on all assets pledged as collateral for 7(a) loans and 504 projects over $50,000. If coverage is not available, the loan cannot be approved. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. C.1.